China’s yuan has bottomed out and is set to recover as investors unwind bullish dollar bets in anticipation of slower US growth and an end to Federal Reserve tightening, according to the wealth arm of Standard Chartered Plc.
(Bloomberg) — China’s yuan has bottomed out and is set to recover as investors unwind bullish dollar bets in anticipation of slower US growth and an end to Federal Reserve tightening, according to the wealth arm of Standard Chartered Plc.
The dollar-yuan currency pair is unlikely to touch new highs even as Beijing maintains loose monetary policy to support its stuttering economy, said Steve Brice, group chief investment officer for wealth management in Singapore. The yuan has tumbled about 6% since the start of April as disappointing data and concern over a property crisis sap investor confidence.
“We’re at critical levels and are seeing pretty strong defense from authorities,” Brice said in an interview. “We’ve hit the peak and I don’t think we’ll hit new peaks. The yuan weakness from our perspective is largely a dollar story.”
The yuan may strengthen back to 7 per dollar over the next 12 months, which would give the central bank more scope to ease policy, Brice said. The currency was little changed Friday at 7.2860.
Standard Chartered’s bearish dollar view is based on its expectation that US Treasury yields will fall regardless of what the Fed does because a recession is unavoidable.
The bank has already begun recommending to clients to reduce their dollar holdings, and to look to unwind funding trades ahead of remarks from Federal Reserve Chair Jerome Powell later Friday, Brice said. “There’s always a risk that the dollar spikes through in the next 24 hours but I would be selling into the Jackson Hole meeting.”
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