- Gauge of dollar index has fallen more than 10% since Sept.
- EM currencies look undervalued at “extreme” levels: Jacobs
According to Bloomberg article published on April 17, 2023, the yuan may rally 5.5% against the dollar this year as the Chinese economy strengthens and the US pulls back from rate hikes, according to Swiss asset manager Pictet Asset Management SA.
The currency may rise to 6.5 per dollar, aided by the nation’s robust current account surplus, according to Sabrina Jacobs, a senior client portfolio manager of the firm’s emerging-markets fixed-income fund. Pictet’s forecast compares with the the median of 6.7 expected by analysts surveyed by Bloomberg.
Jacobs said she is “biased toward short dollar” as the Bloomberg Dollar Spot Index has fallen more than 10% since reaching an all-time high in September. The fund will buy more yuan if it weakens more toward to the 7 level, the London based manager said in an interview last week.
The onshore yuan has gained just 0.3% this year, lagging behind other emerging market peers in Asia, as investors wait for more indications of an economic rebound. Data last month provided more evidence of growth, with credit expansion surging and exports beating estimates.
Mounting pressure on the Bank of Japan to address its yield curve-control settings may unleash another wave of selling the greenback. Strength in the Japanese yen may also spill over into China’s currency market, further boosting the yuan, Jacobs said.
Against a backdrop of peak rates and dollar in the US, emerging market currencies are at “extreme” levels of being undervalued, bolstering the case for sovereign rates, she added. The fund is overweight the local currency bonds of Brazil, Indonesia, Malaysia and South Africa as the hiking cycles of those economies look to have ended.
