A Chinese one-hundred yuan banknote sits on a pile of U.S. one-hundred dollar bills and Chinese one-hundred yuan banknotes in Hong Kong, China. (Photographer: Xaume Olleros/Bloomberg)

Bank of America Joins in on Yuan-Forecast Cuts Amid Trade War

(Bloomberg) -- Bank of America Merrill Lynch is the latest bank to downgrade its forecasts for China’s exchange rate, days after JPMorgan Chase & Co. similarly concluded that an escalating trade war with the U.S. was likely to feed through to a weaker yuan.

“Near-term damage to China growth is already evident” and will hit the economy into the first quarter of 2019, BofAML strategists including Claudio Piron in Singapore wrote in an Oct. 2 note. “Given this, and the prospect of higher U.S. interest rates, Beijing will likely allow and lean on yuan weakness as a crutch for economic support.”

  • The bank now sees the yuan at 7.05 per dollar in the first quarter of 2019, versus 6.90 before.
  • It now projects the yuan at 7.10 in the second quarter, against 6.85 before.
  • Other Asian currencies were also downgraded, with Indonesia’s rupiah seen dropping more than 5 percent to 15,800 per dollar by the second quarter.
  • India’s rupee is seen dropping almost 3 percent to 75 per dollar.
Bank of America Joins in on Yuan-Forecast Cuts Amid Trade War

The team’s new forecast indicates a 2.5 percent drop in the yuan by next quarter, after the currency closed at 6.8725 in onshore trading last week.

©2018 Bloomberg L.P.