The yuan’s top forecaster warns traders against selling the Chinese currency short as good news from trade talk may bolster renminbi
- China’s currency weakened in August past 7 against the US dollar for the first time in more than a decade
- Now traders are split on what an advance beyond the 7 level would lead to
Investors should think twice before betting against China’s currency, according to the most accurate yuan forecaster.
Zhou Hao, an economist at Commerzbank AG, said there is a risk the yuan may strengthen past 7 per dollar in the near term, just months after it breached the symbolic level for the first time since the global financial crisis. The market has not priced in the possibility that China and the U.S. reach a more concrete deal in their dispute, meaning the currency may be vulnerable to sudden gains, he added.
“Investors shouldn’t rule out the possibility that good news on trade talks emerge in the near term,” Zhou said. “So I suggest traders be flexible and corporates not be too speculative when buying the dollar against the yuan.”
The Chinese currency plunged past 7 for the first time in more than a decade in August, stoking fears of capital outflows and further drops. The US later formally labelled China a currency manipulator, though it has said the designation could be lifted once the first part of a trade deal is done.
Now, market watchers are split on what an advance beyond the 7 level would lead to. Zhou - ranked by Bloomberg as the most accurate forecaster for the currency over the past two quarters - said the currency will likely fall as the trade dispute causes economic pain. AxiTrader strategist Stephen Innes said it may prelude more gains in Asian exchange rates.