Chinese yuan likely to outperform a basket of currencies amid intensifying risk aversion, US-China trade disputes: Scotiabank

The Chinese yuan is expected to outperform a basket of currencies amid intensifying risk aversion and ongoing US-China trade disputes, as indicated by steadily increasing CFETS RMB index, according to the latest research report from Scotiabank.

China will not engineer a depreciation in the yuan as a tool in trade spat. China’s commerce ministry said Sunday that the nation has received US Treasury Secretary Steven Mnuchin’s message that he is considering a trip to China and welcomes the move.

The world’s two largest economies will finally resolve their trade conflicts through dialogue in our view, while risk sentiment will continue swinging in response to the headlines during the negotiating period.

In addition, China will continue to push forward with its economic reform and opening-up going forward. It is expected to attract more FDIs and portfolio investment inflows, supportive of the yuan in the medium term.

China’s top decision-making body, the Politburo, said in a statement after a meeting focusing on economic works held on Monday that the nation will strive hard to achieve this year’s economic targets and will boost domestic demand to ensure the stability of the economy.

"We believe China’s monetary policy will shift to a neutral stance or a neutral stance with a loosening bias in the months ahead from the previous neutral stance in fact with a bias towards tightening. We maintain our existing short USD/CNY position targeting 6.20 while keeping a close eye on the 10-year UST yield and the VIX index," the report added.

Lastly, FxWirePro has launched Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest