The yuan is likely to weaken this quarter and beyond if expectations of interest rate hikes by the US Federal Reserve are realized in June, JPMorgan Asset Management said.
The observation is consistent with the yuan’s waning popularity in Taiwan, where yuan deposits fell to a 14-month low last month, central bank data showed.
“The yuan remains under pressure to depreciate in the next three to six months, when the US dollar might stage a rebound on the back of [Fed] interest rate hikes,” Hong Kong-based JPMorgan chief Asia strategist Tai Hui (許長泰) told a news conference in Taipei last week.
The Fed is poised for two rate hikes of 25 basis points this year, with the first rise slated for June and the second one toward the end of the year, backed by improving car sales, property transactions and investment data, Hui said.
The moves would drive global funds to assets denominated in US dollars and weigh on the yuan and other major currencies, the analyst said.
The US fund house expects the greenback to gain between 3 percent and 5 percent in the next 12 to 18 months,
Against this backdrop, the yuan might lose between 3 percent and 4 percent this month and next month as global fund managers take action ahead of Fed, Hui said.
That the Chinese currency has been overvalued for decades is creating further pressure for corrections, he said.
The New Taiwan dollar, on the other hand, has been undervalued over the years, limiting room for its depreciation in lieu of poor economic showings this year, Hui said.
JPMorgan also voiced doubt over Japan’s use of negative interest rates to stimulate investment, saying that a lack of confidence, not high borrowing costs, depressing the country’s economy.
That explained why Japan has failed to turn its economy around and might have to step up monetary easing in the second half of the year, he said.
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