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The strategists believe that the weakening of the Chinese currency will eventually collapse on a key psychological level that could cause an even steeper fall and undoubtedly provoke a new round of criticism from the Trump government.
According to strategists, the trade dispute between the United States and China is a factor that has strengthened the dollar and weakened the yuan. The yuan began to fall sharply in June when trade tensions erupted. But strategists say other factors in the weakening of the currency have weakened most countries, including falling stock prices.
Shanghai shares lost 2.9% Thursday and 25% since the beginning of the year.
Some strategists said China was trying to prevent the decline of the yuan from becoming too disruptive or causing capital flight out of the country. But a number of them say China could also let the yuan fall 7 later this year or next year.
"Generally, this is perceived as an important psychological threshold, but now that the renminbi has gone from 6.3 to 6.9 and that there have been no significant outflows from China, we believe the PBOC is confident that it can manage a new fall below 7 without destabilizing destabilization. "said Chang Liu, Chinese economist at Capital Economics.
It seems that China is trying to support the renminbi, as the yuan calls it. September data from the People's Bank of China show that the central bank has tried to limit losses.
"They sold foreign currency to support the renminbi … about $ 17 billion in reserves, a maximum since the beginning of 2017," said Liu.
The People's Bank of China sets a daily rate for the yuan, which allows it to trade a band against the dollar representing 2% on either side of its median value. That's the onshore currency, or CNY. The CNH offshore currency is used by foreign investors and banks and is generally lower than the CNY.
Jonas David, emerging markets strategist at the main investment office of UBS Global Wealth Management, said the decline in the yuan was linked to the slowdown in the Chinese economy. "We are clearly seeing a softening economy and we expect further easing of monetary and fiscal policy," he said.
David said he expects the yuan to reach 7.10 over the next six months and 7.30 for a dollar a year from now. "We think that there is no reason for the depreciation of the Chinese yuan to stop at a level of 7. It is a psychological level, but we actually believe that the Chinese yuan will continue to weaken it, "David said.
When the Treasury released its currency report on Wednesday, Treasury Secretary Steven Mnuchin said in a statement that China's lack of transparency and the weakening of the currency posed "significant problems". for a fairer and more balanced trade ". ongoing discussions with the People's Bank of China ".
Liu said the weakness of the yuan has helped China avoid the worst impact of commercial tariffs.
"Until now, we believe that the impact on fares will be more or less offset by the decline in the renminbi, and we will see a stronger and stronger wind next year, as tariffs will increase.The economy is slowing down but mainly due to internal factors, policy makers have tightened policy 2016 by the end of this year, "he said, adding that a slowdown in credit had an impact on the economy.
But since May, he said the priorities had changed and that China was now using stimulus measures to boost the economy and encourage bank lending.
China's GDP in the third quarter should show a slight decline on Friday, from 6.7% to 6.6%.
"There is a gap between the beginning of the policy and the time it takes to get through," Liu said. "We think that will slow down another nine months."
