David Woo – Director of Global Currency and Interest Rate Research at Bank of America Merrill Lynch predicted: `In the December meeting, we believe that the question will no longer be whether the US economy can withstand interest rates.`
This strategist does not believe that China’s motive for devaluing its currency is to help export firms gain market share in global trade.
China may have to abandon the policy of pegging the RMB price to the USD.
`We think that the RMB will continue to weaken. Because when opening the capital account, Beijing will not be able to both lower interest rates and protect the domestic currency at the same time,` Bloomberg quoted Woo’s comments as saying.
Bank of America Merrill Lynch forecasts: `One USD will be exchanged for 7 yuan next year, which means the yuan will weaken by 9% compared to now. The yuan will begin to lose value from the first quarter of next year, due to the impact of both being
The surprise price cut in August was intended to reduce the extent to which the Central Bank of China (PBOC) had to intervene in the currency market to push up the value of the yuan.
Woo admits Wall Street’s perspective has changed.
Barclays also recently reduced its forecast for the yuan to depreciate sharply.
However, like Woo, Wynne still advises investors to buy USD/yuan futures contracts to profit if the Chinese currency weakens.
Woo believes that once the IMF announces the results of whether the RMB will be included in the agency’s basket of reserve currencies, Â Chinese officials will lose motivation to stop the RMB depreciation.
