SHANGHAI (Reuters) – Global investment houses have rushed to cut their yuan forecasts as China’s currency heads for its worst month in decades, with optimism souring amid a domestic economic slowdown and aggressive expectations for U.S. interest rate rises.
J.P. Morgan has cut its yuan forecasts twice in a week, and analysts at Standard Chartered, HSBC and others have also turned bearish on the Chinese currency.
A median forecast of nine banks now predicts the yuan to trade at 6.63 per dollar at the end of the second quarter. A majority of them expect the yuan to weaken further to 6.71 towards the year-end.
The yuan hit 6.6510 per dollar on Friday, an 18-month low.
“Authorities may welcome a weaker yuan to support growth and exports, as outflows are likely manageable,” Standard Chartered said, revising down their end-June forecast to 6.7 per dollar from 6.35 previously.
The banks had previously forecast the currency to trade at around 6.4 at end-June in their annual outlook published late last year, when the Chinese currency was rising steadily and among the performing emerging market currencies.
The turnaround has come amidst April’s 4.6% plunge for the yuan against the dollar, which has the currency on course for its biggest monthly drop since China unified official and market exchange rates in 1994.
A worsening growth outlook, hurt by COVID-19 lockdowns, and the widening policy gap with the United States is also likely to drive flows toward dollars in the near term, analysts said.
“We believe the market’s perceived monetary policy divergence between Fed and PBOC could reach the max level in Q2 to Q3,” said Wang Ju, head of Greater China FX and rates strategy at BNP Paribas, referring to the People’s Bank of China.
“After that, Fed tightening risks are likely priced in while China’s GDP could bottom out on policy stimulus,” Wang added, expecting the yuan to weaken to 6.6 at end-Q2 before hitting a trough of 6.7 at the end of the third quarter.
Here is a summary of some forecasts for the Chinese currency:
INVESTMENT HOUSE Q2-2022 Q3-2022 end-2022 Q1-2023 Q2-2023
ANZ 6.55 6.4
BNP Paribas 6.6 6.7 6.6
UBS Global Wealth 6.55 6.5 6.5 6.5
J.P.Morgan 6.7 6.75 6.8 6.8
MUFG Bank 6.6 6.65 6.7 6.65
Standard Chartered 6.7 6.65 6.6
HSBC 6.6 6.62 6.65 6.68 6.7
Daiwa Capital 6.9
Capital Economics 6.65 6.8 7
Union Bancaire 6.75 6.85 6.95 6.95
(Reporting by Winni Zhou and Andrew Galbraith; Editing by Sam Holmes)