Chinese Yuan Could Fall Another 2.8% In 2015 And 17.8% By Year End 2016

In an article published late Monday on CNNMoney, Sophia Yan shared some of the results of the survey of economists that the site conducted.

As per the study’s median estimate, the Chinese yuan, which is already down almost 2.6 percent year-to-date, is expected to decline an extra 2.8 percent against the U.S. dollar in what is left of the year.

“That might not sound like a major decline, but it is a big move for the tightly-controlled yuan,” Yan explained. “In addition to the surprise depreciation, the central bank changed the way the yuan's 2 percent daily trading band is set – a calculation that now uses the previous day's closing price instead of the bank's own opaque process.

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"The move pushed currency markets into a tizzy, and set off a wave of speculation over how much further the currency might drop,” the author added.

Different Degrees Of Bears

One of the economists surveyed was particularly bearish on the currency, suggesting it would fall to 7.50 (yuans per dollar) by the end of 2016. This would imply a 17.8 perfect plummet from current rates.

The other economists polled were not as pessimistic, but the broad majority agreed on the fact that the renminbi will continue to lose value versus the U.S. dollar as the Chinese economy settles into its new growth rates.

Capital Outflows And Yuan's Impact On Asia

Capital outflows this year have been significant in China, and Mizuho Securities analyst Jianguang Shen thinks further devaluation could lead to an exacerbation of the outflow process.

Moreover, the article noted, many of the economists are also worried about the impact that the lower yuan will have on the rest of Asia. In fact, Credit Suisse's Dong Tao said in a recent report, “The most exposed economies may be tempted to cheapen their currencies to mitigate some of the negative impacts of renminbi depreciation.”

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