Investment banks rush to cut yuan forecasts again after April revisions

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Major investment houses are cutting their forecasts for the yuan for the second time in just three weeks as the Chinese currency's recent sharp declines tore through their previous revisions, catching many off guard.

A triple whammy of slowing growth, COVID-19-related economic disruptions and aggressive U.S. Fed tightening has put strong downward pressure on the yuan, while Chinese authorities appear to be standing aside to let their tightly managed currency drop.

"Neither are new developments per se, but things have become more intense, which we believe warrants consideration for our forecasts." But the yuan's latest fall, to its lowest in nearly 20 months and a rare gyration for a currency that has typically been tightly managed within a thin range, has led many analysts to project further weakness.

"The downside risk comes from the People's Bank of China leaning aggressively against further CNY weakness and a sharper decline in dollar than we expected; risk sentiment could also boost CNY in the case of massive stimulus. In this case, USD/CNY could see quick retracement to 6.70." Ken Cheung, chief Asian FX strategist at Mizuho Bank, cut his year-end yuan forecast for a second time on Monday to 6.7 from 6.6.

 

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