UBS forecasts the risk of exchange rate appreciation in the near future. Bank analysts predict that the People’s Bank of China (PBOC) may soon adjust the daily USD/CNY rate upward in response to the strengthening of the US dollar since early 2024.
This year there was an increase of 4.6%, but the PBOC kept the US dollar-yuan exchange rate around 7.10 to maintain currency stability.
The yuan’s relative strength against other major currencies has been a side effect of the PBOC’s persistent fixings, which UBS says are counterproductive to China’s economic growth and efforts to combat disinflation.
The bank suggests that current yield differences between the US and China, which are widening, indicate that USD/CNY should trade closer to the 7.35-7.40 range.
UBS also noted that while the US Federal Reserve’s rate cutting cycle, which began in September, could lead to a downward trend for USDCNY, this potential decline could be mitigated by concerns over trade tensions between the US and China ahead of the US presidential election. November.
The firm recommends that investors consider taking a long position on the USD/CNY pair, suggesting a trade with a target of 7.35 and a stop loss at 7.15. This strategy is expected to yield a positive return of about 2.3% per year.
InvestingAbout Insights
When discussing currency movements and central bank policy, investors may want to consider individual stocks that may be impacted by such macroeconomic factors. An interesting case is Dixie Group Inc (DXYN), a company with a market capitalization of $7.63 million, with a negative P/E ratio of -2.74 and a P/E ratio of just 0.26 as of the trailing twelve months ending in the fourth quarter of 2023. , this suggests the stock is trading at low valuation multiples.
One InvestingProfessional advice highlights that DXYN trades at a low price-to-book ratio, which may be of interest to investors looking for assets that may be undervalued relative to their book value. Additionally, the company’s valuation assumes a strong free cash flow yield, which may appeal to investors looking for a potential cash-generating business.
Despite share price volatility and its poor performance over the past month (return -12.65%), as well as its lack of profitability over the past twelve months, DXYN’s liquid assets exceed its short-term liabilities, which could provide some financial stability in an uncertain environment. economic times.
For a deeper dive into Dixie Group Inc.’s financial health and stock performance, including additional Investment Tips such as stock performance over the last decade and EBIT valuation ratios, interested readers can learn more at: https://www.investing.com/pro/DXYN. There are 9 additional tips available on InvestingPro and users can use a coupon code. PRONEWS24 to receive an additional 10% discount on annual or biennial Pro and Pro+ subscriptions.
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