The triple shock of the slowdown in COVID-19-related economic disruptions and the aggressive tightening of the US Federal Reserve has put strong depressing pressure on the yuan as the Chinese government appears to be set aside to abandon its carefully managed currency.
The yuan’s spot rate has fallen more than 6% against the dollar over the past four weeks to 6.7992 per dollar on Monday, beating the average forecast of 6.71 at the end of the year. , according to a survey conducted by nine banks at the end of April.
Several banks now see the yuan weaken to 6.9 or even reach 7 by the end of the year, a level not seen since the 2020 pandemic.
The HSBC note noted that the currency has become stretched, “especially against the background of the slowdown in the Chinese economy and the Fed remains a staunch hawk.”
“There are no new developments in themselves, but the situation has become more intense, which, in our opinion, should be taken into account for our forecast.”
HSBC, which lowered its yuan forecast for the second time in three weeks, now expects the yuan to trade at 6.75 to the dollar at the end of the second quarter and then recover to 6.70 at the end of the third quarter from 6.60 and 6.62. , respectively, after its preview.
A poll conducted in late April with nine banks predicted that the yuan would be 6.63 per dollar at the end of June, according to the median forecast. Most respondents expected the yuan to weaken to 6.71 by the end of the year.
But the recent fall of the yuan to its lowest level in almost 20 months and a rare turnaround for a currency that has traditionally been severely limited by the range has led many analysts to predict further weakness.
A series of weaker-than-expected economic data in April, released on Monday and last week, including lending, retail and industrial production, confirmed market sentiment that the world’s second-largest economic world is facing stronger winds as quarantine through COVID -19 heavy fees.
“USD / CNY could quickly rise to 7 if the situation with COVID-19 on shore deteriorates with additional blockades, which are accompanied by serious disruptions in the supply chain,” Barclays said in a statement.
However, the bank also noted the possibility that the yuan could fall rapidly if the government intervenes to support the currency or support the economy.
“The risk of decline comes when the People’s Bank of China (NSC) aggressively opposes further yuan weaknesses and a sharper fall in the dollar than we expect; risk sentiment can also raise the yuan in the event of massive stimulus measures. In this case, USD / CNY can see a rapid rollback to 6.70.
Barclays lowered its forecast for the yuan to 6.9 per dollar at the end of the second quarter from 6.3 earlier to take into account the strengthening dollar and the outflow of foreign portfolio.
Others, including Mizuho Bank and UBS, have also downgraded their yuan forecasts to reflect bearish sentiment.
Ken Chung, Mizuho Bank’s chief currency strategist in Asia, cut his yuan’s forecast for the second year on Monday from 6.6 to 6.7.
Wang Tao, China’s chief economist at UBS, revised his year-end forecast for the yuan to 6.9 from 6.6 earlier.
“USD / CNY may exceed 7 by the end of the year due to the strength of the dollar and the likely sharp weakening of Chinese exports and the economy as a whole, but is expected to fall below 7 by the end of the year,” she said.
“This is due to the fact that we expect the economic impact associated with COVID-19 to diminish in the second half of the year, and growth will resume and market confidence will improve.”