New | China’s wobbly economy weighs negatively for yuan and other Asia currencies
China’s yuan and other currencies set for another year of losses, analysts say
The yuan and other currencies linked to the China story are expected to depreciate further this year, amid a backdrop of soft global demand that promises to put additional brakes on the already cooling mainland economy.
The yuan traded in Hong Kong lost 5.3 per cent of its value in 2015, ending the year at 6.5727 to the US dollar, while yuan traded in Shanghai shed 4.5 per cent of its value to end the year at 6.4936 per US dollar, its lowest level in four and a half years.
The People’s Bank of China devalued the yuan by 2 per cent on August 11, a move along with a pattern of weaker daily fixings, that point to what analysts believe is Beijing’s unofficial strategy to engineer a weaker currency to help boost exports and revive the economy.
Stephen Innes, senior trader at OANDA Asia Pacific, expects the yuan to shed 3.5 per cent to 4.5 per cent of its value this year.
The China economy is not healthy, despite considerable easing of credit conditions
“The China economy is not healthy, despite considerable easing of credit conditions. The world’s second largest economy will continue to provide a challenge for global investors as China painful shift from the ‘old economy’ will continue to weigh on investor sentiment,” Innes said.
“We should expect the PBOC’s monetary easing to continue well into 2016. The market forecasters are anticipating two 25-basis point rate cuts and up to five 50 basis point reserve ratio requirement (RRR) cuts in 2016,” Innes added.
Both the interest rate cuts and the RRR reduction will weigh negatively on the yuan. Innes believes the policy would also be negative for other regional currencies like the Singapore Dollar this year.