(Yicai Global) March 16 -- Global investment bank UBS Securities raised its forecast for the value of the yuan against the dollar from 7.3 to 7.15 by year end.
The dollar has weakened since December, despite signs that the Federal Reserves will hike rates faster than expected, said Wang Tao, chief economist at UBS Securities Greater China. The bank believes that trade frictions between China and the US may occur slower than previously thought, and the US is unlikely to pile pressure on the yuan immediately. Having tightened capital flows, the Chinese government should be able to manage the local currency against the greenback without much difficulty this year, he added. His firm forecast the dollar-yuan exchange will drop no lower than 7.15 by the end of the year.
Since the dollar's rally late last year, the Fed looks set to hike rates once more than expected, but the dollar index has still lost almost 1 percent so far this year, the report said, adding that economic recovery in Europe and subtle changes in European central banks' attitudes warrant close attention. Recent developments have dampened expectations of the fiscal stimulus package introduced by the US President Donald Trump's administration.
America's trade policy toward China is a key contributing factor affecting the yuan's exchange rate, the report continued. There will be increasing trade frictions between the pair, but UBS does not predict the US government to list China as an exchange rate manipulator or raise tariffs on Chinese imports this year. America will likely criticize the country for offering unfair subsidies to exporters and enforce trade regulations to curb Chinese exports, the report said. As part of the US tax reform, the controversial border tax will not take effect until the end of the year or even later, though America may continue to pressure China into not devaluing the yuan against the dollar.
China's economy performed well in the first two months of the year, the report says, adding that the real estate market boomed and increasing the full-year forecast for gross domestic product growth to 6.7 percent from 6.4 percent. It also adjusted its predictions for property development, increasing expected industry growth from zero to between 6 percent and 8 percent.