THE yuan is forecast to pare some of its recent losses against the U.S. dollar over the coming year on hopes that risks from an escalating U.S.-China trade war and a deep selloff in emerging markets will subside, a Reuters poll found.

Having weakened more than 6 percent so far this year, the yuan hit a 7-week low Monday after the People’s Bank of China (PBOC) loosened policy by cutting the ratio of cash that banks must hold as reserves.

The PBOC’s decision was its latest move to try and bolster an economy that is feeling the heat of a tit-for-tat tariff dispute with the United States.

While most strategists left their currency predictions unchanged after the PBOC cut reserve requirements, the latest 12-month yuan view was the most pessimistic forecast in Reuters polls since October last year.

The yuan was expected to gain around 1.7 percent to 6.80 per dollar in a year’s time from around 6.92 currently, according to the poll of over 50 foreign exchange strategists.

Sixteen strategists see the yuan down to 7 to the dollar or higher at some point over the 12-month period, the highest number of respondents in the poll predicting that since August 2017.

“The most likely scenario for a strong yuan rebound against dollar is for risk-on sentiment to resume again. This will likely only come when the negativity from U.S.-China tensions and emerging market risks fades,” said Jeff Ng, Asia chief economist at Continuum Economics.

“We believe that the most likely trigger would be a resolution of U.S.-China trade talks, given the unpredictable nature of U.S. President Donald Trump. Other possible triggers could also stem from a stronger trade relationship between China and Europe or investors finally finding another positive reason to put risk on the table again.”

Trump imposed tariffs on US$200 billion worth of Chinese imports last month, in addition to duties on US$50 billion in goods previously announced. China has retaliated and plans for new trade talks between two countries recently collapsed.

Most currency strategists remained optimistic on the yuan’s outlook for the coming year on hopes some trade negotiations will be initiated between China and the United States. Those expectations are also dependent on a fading in the dollar’s safe-haven appeal.

(SD-Agencies)