SHANGHAI Global investment banks have raised their forecasts for the Chinese yuan this year because of expectations of the country's economic reopening and Beijing's decision to relax property sector curbs.
The bullish forecasts follow Beijing exit from a crippling zero-COVID strategy in early December and reverted to pro-growth policies to restore investor confidence and prioritise domestic demand.
Lemon Zhang, FX strategist at Barclays said that China's reopening and visible policy shift towards the property sector has lifted the outlook, and there could be more upside in the medium term.
The forecasts for the yuan to end 2023 are for 6.5 per dollar, a 3.6 per cent increase from current levels. It has already surged more than 7 per cent from the trough hit in late November to 6.7497 per dollar on Wednesday, up about 2.2 per cent year-to-date.
The yuan will gain 6.15 per cent for the year, the best gain since 2020, if it ends at 6.5 by the end of 2023.
The yuan was down 8 per cent against the dollar last year, its worst annual performance since 1994, due to COVID-induced disruptions and the Federal Reserve's rate rise.
The International Monetary Fund revised China's growth outlook sharply higher for 2023, to 5.2 per cent from the 4.4 per cent forecast in October.
Other investment houses, including Goldman Sachs, HSBC, UBS and Standard Chartered, also projected a stronger yuan.
While asset markets have already priced in a meaningful improvement, we expect a reopening to lift Chinese asset prices, with the most upside in equities and credit, analysts at Goldman Sachs said in a note.
They projected the yuan at 6.5 per dollar by the end of the year, compared to 6.9 previously.
The yuan is supported by the continued capital inflows into China's A shares of Chinese companies that trade on domestic exchanges, and Citic Securities expects foreigners to purchase 200 billion to 300 billion yuan worth of Chinese stocks this year.
A private survey showed that confidence has helped extend gains in China's new home prices in January.
Analysts believe that Beijing will try to limit gains, given concerns about a possible U.S. recession hurting Chinese exports.
Here is a summary of the forecasts for the Chinese currency previous forecasts in brackets.