China’s yuan looks vulnerable to another round of losses in coming months as the delayed impact of official efforts to boost growth means data will stay weak for some time, according to Bank of America.
(Bloomberg) — China’s yuan looks vulnerable to another round of losses in coming months as the delayed impact of official efforts to boost growth means data will stay weak for some time, according to Bank of America.
The offshore yuan may slide to a new record-low of 7.40 per dollar by the end of September as Chinese data will remain disappointing until at least then, said Adarsh Sinha, head of Group-of-10 foreign-exchange research at the bank in Hong Kong.
“Keep in mind that any policies in what we’ve seen since May or anything you get after the politburo will only have a lag impact on activity,” Sinha said in an interview. “You could have a couple of months where the China data remains quite weak.”
The offshore yuan has dropped 3.6% this year and touched 7.2857 per dollar in late June before rallying this month on signs the Federal Reserve is getting close to the end of its interest-rate hikes. The currency was at 7.1777 on Tuesday.
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Bank of America’s quarter-end forecast of 7.40 is somewhat of an outlier. The offshore yuan will edge a bit stronger to 7.15 per dollar by the end of September, according to the median estimate of analysts compiled by Bloomberg.
“It’s just about the durability of the negative surprises we’ve seen in the US and on the China side,” Sinha said. “We get back to where we were in June, where the risk of rate hikes in the US is still very much there and the China data is still looking quite weak then that takes us back towards the highs and maybe a bit beyond 7.40.”
Traders are also likely to stay bearishly positioned on the yuan as it’s a good funding currency for carry trades as long as volatility remain low, until clearer signs emerge that bolster the case for the Fed to stop hiking rates, Sinha said.
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