Chinese yuan likely to trade in range of 6.50-6.70 over remainder of 2017 - Scotiabank

The declining CFETS RMB Index suggests that the Chinese yuan has underperformed a basket of currencies month-to-date amidst a widely weakening U.S. dollar. The South Korean won, Philippine peso and the Malaysian ringgit have meanwhile led gains in regional currencies as hawkish hints from their central banks have raised the odd of future monetary tightening. According to Scotiabank, there is increasing pressure on the central bank of South Korea, Malaysia and Philippines to normalize interest rates as their real policy rates are stuck in the negative territory. The implied volatility of yuan has been declining recently in line with continuously sliding risk reversal.

“With a resilient yuan and expectations of further financial reforms, we think foreign investors will add to their holdings in yuan-denominated financial assets including equities and bonds in the years ahead”, noted Scotiabank.

The CFETS RMB Index might rebound as the U.S. dollar is expected to appreciate modestly due to the progress on the GOP tax reform and relatively hawkish remarks from Fed top officials.

“We expect the yuan to trade in a range of 6.50-6.70 over the remainder of the year”, added Scotiabank.

At 14:00 GMT the FxWirePro's Hourly Strength Index of Chinese Yuan was neutral at -13.2462, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 39.8175. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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