The Chinese currency might hold steady for the rest of this year, after already losing 2.9 percent this year, as China’s central bank would not tolerate a weaker yuan and the US dollar is about to peak, JPMorgan Asset Management said yesterday.
The US fund house stands by its forecast that the yuan might depreciate between 2 and 4 percent this year, and the decline thus far is enough to reflect an economic slowdown without malign spillovers.
“A further drop could trigger capital outflows and the People’s Bank of China would step in to avoid that,” Hong Kong-based chief strategist on Asia Tai Hui (許長泰) told a news conference in Taipei.
Yuan movements are watched closely in Taiwan because the currency has increasingly gained popularity among local corporate and retail investors, although the pace of investment has slowed this year.
Yuan deposits in Taiwan totaled 305.85 billion yuan (US$45.8 billion) last month, down 0.8 percent from the previous month, as depreciation expectations and interest rate cuts dampened its attractiveness. The decline is more evident at 5.7 percent for offshore banking units and stood at 0.12 percent for domestic banking units, as companies are more sensitive about currency volatility, the central bank said last week.
Interest rates for yuan savings deposits hover between 2 and 2.5 percent, compared with more than 3 percent last year, data showed.
Interest in the yuan is also receding in other offshore markets, including Singapore, Hong Kong, Seoul, London, New York and Paris, Standard Chartered Bank said a recent report.
Worries about a hard economic landing in China might have subsided, only to be replaced by rising concerns about bad debt onshore, the British bank said.
The Brexit vote on June 23 drove global funds to take shelter in the US dollar, a trend that might continue to check yuan deposit growth in coming months, Standard Chartered said.
However, Hui forecast the greenback is about to plateau as it is now trading 1.7 percent higher than its 10-year average after years of rally.
The chance of the US Federal Reserve keeping interest rates unchanged is escalating as uncertainty heightens following Brexit, Hui said, adding that would help ease depreciation pressure on the yuan.
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