While the Chines currency is seen as rising only slightly further against the dollar this year, the firm argues it will actually soften against a number of other major currencies traded in Asia.

The market research and analysis firm East & Partners predicts China’s yuan currency will rise only slowly against the dollar through 2018, and also says more small Asian firms are using the yuan as a way to settle international trades.

The views come after East Capital around 1,850 importers and exporters with annual turnover of $1–100 million across Hong Kong, Singapore, Malaysia and the Philippines. It showed that the Chinese currency, which has gained about 3 percent against the dollar so far this year, is now forecast to trade at 0.1589 by year-end – little changed from its present level of 0.1580.

“We expect a weaker US dollar and surge in market sentiment, driven mainly by improving economic fundamentals and easing trade tensions between the world’s two largest economic powers, to support a slight appreciation of the RMB over the remainder of 2018 based on this new research,” East & Partners lead analyst Asia, Sangiita Yoong, said. 

The commentary adds to debate about how developments such as US President Donald J Trump’s proposed tariffs on Chinese imports – and Chinese responses – could affect the dollar and yuan. Also, China has been pushing to make the yuan a more international currency in recent years; the unit is now part of the International Monetary Fund’s Special Drawing Rights currency basket. China in March launched crude oil futures contracts launched in yuan, seen as a competitive threat to the dollar, which for decades has been the dominant currency for commodities trading. Among other developments, meanwhile, the China Banking Regulatory Commission has changed its rules for foreign banks, scrapping approval procedures in areas including overseas wealth management products and portfolio investment funds. 

Mixed fortunes
In Asia, however, the firm said the yuan (aka renminbi) is set to weaken broadly against most major currencies traded in Asia. Businesses in the region expect the currency to lose the most value against the euro, down 11.5 per cent to 0.1135, while the Singapore dollar and Australian dollar are projected to fall 1.0 per cent and 2.0 per cent respectively by end-2018.

Businesses in Hong Kong and Singapore, where the yuan is the second most traded currency behind the dollar, are notably more bullish on the growth prospects facing the yuan this year than is the case with firms in Philippines and Malaysia.

The research shows that small businesses in the region are increasingly using the yuan instead of the euro to settle trades. The yuan accounts for close to one-fifth of average enterprise FX volume in Singapore and one-third in Hong Kong, up 27.9 per cent and 14.6 per cent respectively from three years ago.