The yuan may stop appreciating against the US dollar this year after weakening nearly 3 percent thus far due to softening economic growth and the US Federal Reserve’s tapering of its quantitative easing, Standard Chartered Bank said yesterday.
The British banking group expects the yuan to trade at 6.04 against the greenback toward the end of the year, compared with 6.05 at the beginning of the year, Hong Hong-based Standard Chartered strategist Becky Liu (劉潔) told a media briefing in Taipei.
The expected flat performance will put an end to four consecutive years of yuan appreciation that has driven investors across the world to increase stakes in the currency.
“We maintain a positive view on the yuan in the long run, despite recent corrections that may soon stabilize as China’s economy gains better growth momentum this quarter onward,” Liu said.
China’s GDP growth slowed to 7.4 percent last quarter, down from 7.7 percent three months earlier, but recent major economic data suggest its trade may have bottomed out and it will show more strength, Liu said.
Standard Chartered’s yuan forecast suggests a reversing trend going forward as the currency closed little changed at 6.2376 against the US dollar on the China Foreign Exchange Trading System yesterday, although dipping 0.15 percent briefly to 6.2466, its weakest since Dec. 14, 2012, according to Bloomberg.
The currency has shed 2.9 percent this year, making it the worst performer in Asia.
Standard Chartered expects Taiwan’s yuan deposits to hit 300 billion yuan (US$48.09 billion) this year after having probably increased to 260 billion yuan last month.
Demand for yuan remains healthy given China’s current account surplus, she said, adding that the currency may gather further support after regulatory easing in Shanghai’s free-trade zone is launched, likely in the second half of the year.
The yuan has become the world’s eighth-largest payment currency and is on course to become a reserve currency, Liu said.
Standard Chartered keeps a neutral view on offshore yuan bonds, with Dim Sum bond yields likely to stay range-bound amid flush liquidity and strong supply.
Dim Sum bond issuance is expected to total between 550 billion and 580 billion yuan this year, with its market value standing at 572 billion as of December last year, the bank said.