Global investment banks rush to trim yuan forecasts under looming Trump tariff threats
Adds forecasts and comments, changes keywords for media clients to CHINA-MARKETS/FORECASTS-YUAN from CHINA-MARKETS/FORECASTS
SHANGHAI, Nov 18 (Reuters) -Global investment banks are rushing to trim their forecasts for the Chinese yuan amid the looming threat of rising trade tensions following Donald Trump's win in the U.S. presidential election.
As part of his pitch to boost American manufacturing during the election campaign, Trump said he will impose tariffs of 60% or more on goods from China.
Trump's proposed tariff and tax policies are seen as inflationary and therefore likely to keep U.S. interest rates high and buoy the dollar, undermining currencies of trading partners.
An average of nine investment banks' forecast projects the yuan CNY=CFXS weakening about 1.8% to7.37 per dollar through the end of 2025.
In comparison, the yuan depreciated by 5% in the initial round of U.S. tariffs on Chinese goods in 2018 and another 1.5% a year later when trade tensions escalated during Trump's first presidency.
Here is a summary of some forecasts for the Chinese currency:
INVESTMENT HOUSE | end-2024 | Q1-2025 | Q2-2025 | Q3-2025 | end-2025 |
UBS | 7.3 | 7.6 | |||
J.P. Morgan | 7.3 | 7.4 | 7.4 | 7.5 | 7.5 |
Societe Generale | 7.4 | 7.3 | 7.2 | 7.1 | |
ING | 7.15 | ||||
Commerzbank | 7.15 | 7.15 | 7.15 | 7.15 | 7.15 |
OCBC Bank | 7.2 | 7.15 | 7.18 | 7.2 | 7.22 |
Morgan Stanley | 7.3 | 7.4 | 7.5 | 7.55 | 7.6 |
Goldman Sachs | 7.25 | 7.5 | |||
Barclays | 7.25 | 7.3 | 7.35 | 7.4 | 7.5 |
Major investment houses had forecast the yuan to trade at around 7.1 per dollar at the end of this year, according to Reuters' calculation based on forecasts from 12 financial institutions in late 2023.
KEY QUOTES:
** MORGAN STANLEY
"The supply chain rewiring over the past seven years has reduced China's direct trade exposure to the US; and the weaker starting points of China's economic fundamentals, China-U.S. interest rate differentials, and USDCNY than in early 2018 mean that a sharp USDCNY depreciation would run the risk of triggering self-fulfilling capital outflows."
** BARCLAYS
"It is worth stressing that risks for the dollar remain skewed towards the upside, notwithstanding the uncertainties relating to the extent of U.S. tariff policy and potential offsetting stimulus from China. Initial signs from Trump's choices for his trade and economic advisors and an underwhelming first round of Chinese stimulus are testament to that judgment."
** GOLDMAN SACHS
"A 20% increase in the effective tariff rate on Chinese imports could shave 0.7pp off China's GDP. In this scenario, we expect USD/CNY to rise towards 7.40-7.50. Our event studies show that the sharpest move in USD/CNY usually comes just after a tariff announcement."
"Whilst an over-shoot of 7.50 is possible, we note that a large currency depreciation could fuel further currency depreciation expectations promoting potential financial market instability. Therefore, we think policymakers will not let the RMB depreciate too much, but rather shift towards more monetary/fiscal policy easing to offset the growth shock."
** ING
"Overall, we expect the onshore yuan (CNY) outlook to be a little weaker with a Trump win in the books, and risks to our forecasts are now tilted toward a weaker CNY.
"We may consider extending the upper bound of our 2025 fluctuation band a little higher if we get signals of stronger action against China, though we expect the People's Bank of China (PBOC) will once again ramp up intervention to prevent excessive depreciation; odds of a move past the 2023 highs of 7.34 are still relatively small unless policymakers abandon the currency stability objective."
** UBS
"In the new baseline, we assume that the new Trump administration will impose additional tariffs on most imports from China in a staged manner starting in H2 2025, though uncertainties remain high on the scale and timing of tariffs and other US policies."
** BNP PARIBAS
"Trump's potential tariff policy is what the market is focusing on the most right now. If the 60% tariff were delivered, then we expect the upside risk for USD/RMB could go to 7.5–7.7. The biggest downside uncertainty revolving around Trump's presidency is whether there would be a new Plaza Accord. This concern arises as he said he prefers a weaker dollar, which is highly unachievable with his current policy proposals, in our view."
** SOCIETE GENERALE
"The CNY will hurt from Trump 2.0. Faster than previous Trump 1.0 but smaller than that in Trump 1.0.
"China's more holistic economic support measures will also mitigate tariff impact to some extent too."
** CITI
"Higher likelihood of tariff imposition means that emerging market (EM) Asia FX could weaken versus the USD. Imposition of a 10-15% tariff would result in 1.5-2.0% offshore yuan (CNH) weakness from current levels of 7.15-7.20, we estimate."
Reporting by Shanghai Newsroom; Editing by Janane Venkatraman
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