UOB says that Asian currencies have strengthened too much

UOB says that Asian currencies have strengthened too much

Some commentary from UOB strategists Heng Koon How and Peter Chia

They say that the Chinese yuan and other Asian currencies have limited room for further gains following the rally over the past 15 months. They argue that further US monetary policy stabilisation will help the dollar find its footing against Asian currencies in 2H 2018.

With regards to the Chinese yuan, they highlighted two key developments that has helped to boost the currency in recent weeks – being the inclusion of Chinese local bonds in the Global Aggregate Index as well as the launch of CNY-denominated crude oil futures.

They forecast USD/CNY at 6.45 by Q4 2018.

The announcement of the crude oil futures in Shanghai may have helped to give the yuan a boost, but it’s hard to see a drastic shift to these contracts as the yuan is still prone to intervention by Chinese authorities – and there is also a risk of capital controls occasionally.

Unless Chinese markets are open and “free”, then only that could be a serious consideration for oil traders and producers.

Though, in the long-term, it does work in the yuan’s favour in terms of global trade since it eats into the dollar’s share of the pie.

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