Chinese President Xi Jinping
The offshore yuan could fall to 7.6 against the dollar by year’s end, a Bloomberg survey shows.
That’s as investors are discouraged by China’s economic slowdown and Beijing’s response.
The yuan has already depreciated about 5% against the dollar since January.
China’s offshore yuan is headed for an all-time low, as Beijing’s efforts to revive the economy have failed to pay off or inspire confidence.
That’s according to respondents of a recent Bloomberg survey, who expect the yuan’s internationally-traded version to hit 7.6 against the dollar by the end of the year.
The currency has already depreciated to around 7.3 per greenback, a 5% drop since January that places the yuan among the worst performing currencies in Asia.
Unlike its onshore counterpart, the offshore yuan is used by investors and businesses outside of mainland China, and is less restricted by governmental controls. While the People’s Bank of China determines a narrow trading rate for the onshore currency each day, the offshore market will behave more like a free floating exchange.
Monetary authorities in Beijing tend to act when the difference between them becomes too great. The most recent efforts to tighten the offshore yuan included increased sales of dollars to buy yuan and banking measures that made it pricier to short the currency.
Still, lows in the offshore yuan reflect poor performance and gloomier expectations for the world’s second-largest economy. In addition to the property crisis, sectors such as manufacturing and retail have faced sharp cooldowns this year. Meanwhile, youth unemployment is at record highs and a consumer prices are in deflation territory.
As calls for large-scale stimulus have been met with hesitation from Beijing, 32% of surveyed investors told Bloomberg that such policies would be “too little and too late” now. Only 11% expect “really big” stimulus, as had happened after the great financial crisis.
Still, Chinese authorities are looking at other ways to to boost the economy and market, such as a recent tax cut on stock trading, reduced restrictions in the housing market, and introducing easier consumer access to credit. But so far, these policies largely have failed to produce a sustained rebound.
Added to that, tightening monetary policy outside of China is pitting the yuan against more attractive investments, such as US assets. For instance, Bloomberg reports that two-year T-bills yield nearly 3 percentage points more than their Chinese counterpart. And rate cuts from China’s central bank that are meant to stimulate the economy also work against the yuan.
Only 19% of respondents maintain plans to increase their exposure to China in the next 12 months, compared with 25% in March. Meanwhile, 24% intend to decrease their holdings, up from the previous 11%.