Yuan up by 5% as economy recovers

Chinese yuan is predicted to rise by 5.5% against the US dollar this year due to the strong Chinese economy and the US’s decision to move away from rate hikes, according to Pictet Asset Management SA, a Swiss asset manager. The currency is expected to climb to 6.5 yuan per dollar, fuelled by China’s current account surplus. Senior client portfolio manager of the company’s emerging-markets fixed-income fund, Sabrina Jacobs, explained that she is “biased towards short dollar” as the Bloomberg Dollar Spot Index has dropped over 10% since its all-time high in September.

The onshore yuan has increased by only 0.3% this year, falling behind other emerging market currencies in Asia, as investors await further indications of an economic rebound. However, recent data has provided more evidence of growth, with credit expansion surging and exports surpassing expectations.

The London-based manager stated that if the yuan weakens further towards the seven level, her company’s fund will purchase more yuan. There is also speculation that the mounting pressure on the Bank of Japan to address its yield curve-control settings may cause another wave of selling the US dollar. Additionally, the Japanese yen’s strength may spill over into China’s currency market, further propelling the yuan.

Jacobs added that emerging market currencies are at an “extreme” level of undervaluation, which supports the case for sovereign rates. The fund is overweight on the local currency bonds of Brazil, Indonesia, Malaysia and South Africa since the hiking cycles of those economies seem to have ended.