Chinese yuan likely to trade with modest strengthening bias this year on increasing foreign interest in yuan-denominated assets, says Scotiabank

The Chinese yuan is expected to trade with a modest strengthening bias this year, owing to the vast rise in foreign interests in yuan-denominated assets. Market participants are of the view that synchronized global growth has arrived and will extend into the year of 2018, Scotiabank reported.

Converging growth momentum is expected to boost commodity prices and risk appetite next year, spurring global inflation afterward. It could prop up EM Asian currencies in general. In addition, as the market may have underestimated the odds of Fed rate hikes next year, the USD is likely to rebound should the US report stronger-than-expected macro data including PCE core inflation in early 2018.

Meanwhile, Italy will hold a much-anticipated election on 4 March 2018, which could dampen market sentiment intermittently, along with some well-known geopolitical risks.

"The EUR’s potential strength post the 2018 Italian General Election would be supportive of the CNY, CNH, and SGD given their tight correlation with the single currency," the report added.

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