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UBS wealth management said on Wednesday that it lowered its forecast of USD / RMB yuan = to 7.0, originally 7.3-7.4; although the yuan is expected to remain volatile around 7, it no longer believes that long RMB positions need to be hedged.
Shi Deming, head of commodities at the office of chief investment officer, chief investment officer and head of foreign exchange and economy in Asia Pacific region, pointed out that the news of easing trade tensions between the United States and China once pushed the RMB below 7, showing the real strength of the RMB, while the previous exchange rate trend was dominated by the broad weakening of the U.S. dollar. On a trade weighted basis, the yuan has fallen slightly from the beginning of the year to the present, with a drop in the number of medium units compared with the year's high.
"The expectation of a trade cease-fire, coupled with mixed economic data from the United States, has seen the dollar generally weaken since the beginning of October, particularly in the Asia Pacific region, which is relatively sensitive to growth." "Further cooling of us China trade tensions will keep the USD / RMB on a downward trajectory in the short term," he said
He believes the yuan is also supported by the US Federal Reserve's rate cut. At the beginning of this year, the short-term interest rate in the United States was higher than that in China. Now, the short-term interest rate in China is 70-100 basis points higher, and the long-term yield has also changed in favor of China.
However, the bank will not be too excited about the RMB because the pendulum of trade tension can be shifted quickly, and China's still weak economic activity should bring more central bank easing.
"It's a bit counterintuitive to let the RMB appreciate strongly on a trade weighted basis. Only when there is a meaningful reversal of tariffs, will the RMB show a broad strength, but it's not expected to show up at this stage." He said.
For the bank, the yuan fluctuated in the weak US dollar, indicating that 7.0 is not an insurmountable boundary.
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