The Chinese yuan is set to weaken further against the dollar as trade tensions between the United States and China continue, according to CLSA Chief Economist Eric Fishwick.
Fishwick predicts the yuan will reach around 7.3 per dollar by the end of the year. On Tuesday morning, the yuan traded around 7.1144 against the U.S. currency on the Chinese mainland.
“Looking at how the currency trades, it is very clearly demonstrated that it is being used as a way to offset the effects of tariffs,” Fishwick told CNBC’s “Street Signs” on Monday. “So, the yuan is allowed to weaken whenever the U.S. ratchets the tensions higher.”
“I think that the forces that are pushing the yuan lower are still in place,” he added.
Going into 2020, the yuan could be modestly stronger because of the U.S. dollar, according to Fishwick.
“Looking into next year, for the first time in a long time, we’re able to talk about the prospects for the dollar weakening again,” he said. The U.S. economy is going to slow further as the effects from earlier tax cuts wind down, he said.
“Also, the U.S. looks more and more like a conventional late-cycle economy. I’ve brought my forecast down for the U.S. in 2020,” Fishwick said, adding that he expects the U.S. Federal Reserve to cut interest rates through next year.
“There’s no reason why the Fed should sit back from that. It doesn’t have an inflation problem to look for, so, I think it’s reasonable to assume the Fed cuts aggressively through 2020,” he said, adding that he expects four rate cuts next year from the U.S. central bank. “As the market focuses on those prospects for rate cuts, that’s the point at which I would expect the dollar to start to depreciate.”
Reference: CNBC
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