© Reuters. FILE PHOTO: Chinese Yuan banknotes are seen in this illustration taken February 10, 2020. REUTERS/Dado Ruvic/Illustration
SHANGHAI (Reuters) – Global investment banks have raised their forecasts for the this year on expectations the country’s economic reopening and Beijing’s decision to relax property sector curbs will trigger strong capital inflows.
The bullish forecasts follow Beijing’s exit from a crippling zero-COVID strategy in early December and reversion to pro-growth policies to restore investor confidence and prioritise domestic demand.
“China’s reopening and visible policy shift toward the property sector has lifted the yuan’s outlook, and there could be more upside in the medium term,” said Lemon Zhang, FX strategist at Barclays (LON:).
On average, the forecasts are for the yuan to end 2023 at 6.5 per dollar, a 3.6% rise from current levels. It has already surged more than 7% from the trough hit in late November to 6.7497 per dollar on Wednesday, up about 2.2% year-to-date.
If it ends 2023 at 6.5, the yuan will be up 6.15% for the year, the best gains since 2020.
COVID-induced disruptions and the Federal Reserve’s rate rises have pressured the yuan, driving it down roughly 8% against the dollar last year, its worst annual performance since 1994.
The International Monetary Fund has revised China’s growth outlook sharply higher for 2023 to 5.2%, from 4.4% it forecast in October.
Other investment houses including Goldman Sachs (NYSE:), HSBC, UBS and Standard Chartered (OTC:) also projected a stronger yuan.
“While asset markets have already priced in a meaningful improvement, we expect reopening to continue to lift Chinese asset prices, with the most upside in equities and credit,” analysts at Goldman Sachs said in a note.
They forecast the yuan at 6.5 per dollar by the end of this year, compared with 6.9 previously.
Persistent capital inflows into China’s A shares – stocks of Chinese companies that trade on domestic exchanges – are also supporting the yuan, and Citic Securities expects foreigners to purchase 200 billion to 300 billion yuan ($44.46 billion) worth of Chinese stocks this year.
Improving confidence has also helped extend gains in China’s new home prices in January, a private survey showed on Wednesday.
In a previous Reuters survey conducted in November, analysts had predicted the Chinese currency will finish 2023 around 7 per dollar.
Still, analysts also reckon Beijing will try to limit yuan gains, given worries about a possible U.S. recession hurting Chinese exports.
Here is a summary of some forecasts for the Chinese currency (previous forecasts in brackets):
INVESTMENT Q1-2023 Q2-2023 Q3-2023 Q4-2023
Goldman Sachs 6.5 (6.9)
HSBC 6.7 (7.0) 6.6 6.55 6.5 (6.9)
UBS 6.6 (6.9) 6.6 6.5 6.5 (6.7)
Standard 6.7 (7.05) 6.8 6.8 6.75
Chartered (7.1) (7.0) (6.95)
Barclays 7 7 6.8 6.7
($1 = 6.7470 Chinese yuan)
Dollar stabilizes near five-week high ahead of more debt ceiling talks
Investing.com – The U.S. dollar stabilized in early European trade Tuesday, just off a five-week high helped by its safe haven status as the standoff in Washington over the U.S. debt ceiling continued.
At 03:15 ET (07:15 GMT), the , which tracks the greenback against a basket of six other currencies, traded largely flat at 102.250.
The potential for a U.S. default of its debts if a deal is not done to lift the country’s borrowing limit, which Treasury Secretary Janet Yellen reiterated could be hit as soon as June 1, has helped the dollar push higher of late, with traders seeking the greenback given it is often used as a safe haven in times of stress.
The main parties are expected to meet once more later Tuesday, with President Joe Biden expressing confidence a deal can be done, but Republican House of Representatives Speaker Kevin McCarthy said on Monday that the two sides were still far apart.
“Unless we see truly encouraging progress, investors’ fears may keep growing,” said analysts at ING, in a note. “Barring positive news on this end, we think the balance of risks remains tilted to the upside for the dollar for now, which should see safe-haven flows as risk sentiment stays subdued.”
Aside from this, traders are likely to focus on the release of U.S. data for April, which is expected to show sales grew 0.8% on the month in April, an improvement from the dramatic slump of 0.6% last month.
The raised interest rates last week for a 10th straight time, but hinted that it may be about to pause its aggressive policy tightening as it studies incoming economic data and assesses the impact of the tightening to date.
Inflation remained elevated in April, even if slightly lower than the prior month, and a number of Fed officials have said in separate addresses that interest rates were likely to stay higher for longer if prices continue to remain substantially above the Fed’s 2% target.
Elsewhere, rose 0.1% to 1.0880, after bouncing off a five-week low overnight, ahead of the release of preliminary first quarter for the euro zone.
This is expected to show the region barely scraped growth in the first three months of the year, rising 0.1% on the quarter and 1.3% on an annual basis.
Also of interest will be the for May, which is expected to show a deterioration of sentiment in the eurozone’s largest economy.
fell 0.3% to 1.2494 after the U.K. unexpectedly rose to 3.9% in the three months to March, raising the likelihood of the Bank of England pausing its run of increases when it next meets in June.
dropped 0.3% to 135.78, fell 0.3% to 0.6683, while rose 0.2% to 6.9643 with the yuan trading near a two-month low after Chinese data showed and grew less than expected in April.
rose 0.1% to 19.6861 as Turkey’s presidential race heads to a runoff with incumbent Tayyip Erdogan leading his opposition rival.
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Asia FX dips on weak Chinese data, hawkish Fed comments
Investing.com — Most Asian currencies retreated on Tuesday as disappointing Chinese economic data posited a weak outlook for the region’s largest economy, while hawkish comments from Federal Reserve officials also brewed uncertainty over the path of U.S. interest rates.
fell 0.1% and traded near a two-month low after data showed and grew less than expected in April. The readings, which come on the heels of several weak economic indicators earlier this month, point to a staggered recovery in Asia’s largest economy, even after the country relaxed most anti-COVID measures earlier this year.
The weak data also saw markets positioning for a potential 25 basis point rate cut by the People’s Bank next month, which is likely to fuel further weakness in the yuan. The currency was trading just shy of the psychologically important 7 level against the dollar.
Weakness in China spilled over into other Asian currency markets, particularly those with a high trade exposure to the country. The fell 0.1%, while the led losses across Southeast Asia with a 0.3% dip, as traders also locked in recent profits in the currency.
The fell 0.1%, also coming under pressure from a sharp drop in in the face of rising interest rates and worsening economic conditions.
Sentiment towards risk-driven assets was also rattled by a slew of Federal Reserve officials warning that the bank could still act further to bring down stubborn inflation. said in separate addresses that interest rates were likely to stay higher for longer, with some officials also raising the possibility of more interest rate hikes.
The and steadied near a one-month high on Tuesday, after logging small losses in the prior session. But the greenback still strengthened against the by about 0.1%.
The dollar moved little this week as markets hunkered down in anticipation of more U.S. economic signals this week, starting with and due later in the day.
Several more Fed speakers are also lined up for the week, most notably on Friday.
show that markets are still positioning for a pause in the Fed’s rate hike cycle in June. But traders are also factoring in a small chance of a 25 basis point hike.
The prospect of U.S. rates remaining higher for longer bodes poorly for Asian currencies, as the gap between risky and low-risk yields narrows.
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