Yuan to recoup losses on strong trade position, rupee seen soft - Reuters Poll

By Sumanta Dey

BANGALORE (Reuters) - The yuan will reverse its recent weakening trend and strengthen over the next year due to the country's large trade surplus, while the rupee will likely dip a little, a Reuters poll showed on Thursday.

The yuan has weakened more than 3 percent so far this year amid speculation the People's Bank of China was depressing the currency to deter speculators from betting on its continuous appreciation.

It was the most sustained depreciation since its de-pegging from the U.S. dollar in 2005 and wiped out all of its gains seen in 2013.

However, the poll of around 20 currency strategists taken this week showed the yuan will soon shrug off those losses and climb to 6.22 per U.S. dollar in a month, close to Thursday's rate of 6.23, 6.15 in six months and 6.07 in a year.

Indeed, only two strategists said it would reach close to the 6.27 level of April 30 at some point in the forecast horizon.

"China's external accounts (trade and current account) are still in surplus and that's going to necessitate the PBoC to intervene and stem a sharp appreciation but in the longer term, the yuan's fundamentals require a gradual strengthening," said Sacha Tihanyi, currency strategist at Scotiabank in Hong Kong.

China reported a 0.9 percent year-on-year rise in exports for April on Thursday, from a 6.6 percent decline in March and beating forecasts for a 1.7 percent decline.

The trade surplus more than doubled to $18.45 billion from $7.71 billion in March.

While that may help lift growth expectations for the second quarter, ongoing reforms to reposition the economy and derive more growth from consumer demand rather than exports are expected to cool the pace of expansion.

Gross domestic product growth has averaged 7.7 percent in 2013, a shadow of the double-digit growth rates of the last three decades.

Economists in a Reuters poll predict a 7.3 percent average growth rate this year, which would be the slowest expansion since 1990, and a further cooling to 7.2 percent in 2015.

Analysts said the PBoC will manage the currency in a tight band and allow for gradual appreciation from here on, but will also check speculation on one-way appreciation trades.

The central bank set its daily midpoint 0.02 percent weaker at 6.1557 on Thursday.

The poll also showed the rupee will likely trade near Thursday's rate of 60.0 over the next three months before falling to 62.30 in a year, slightly lower than last month's consensus.

While the outcome of national elections will likely have a positive impact on the rupee if the opposition Bharatiya Janata Party's pro-business leader Narendra Modi was to form a new government, analysts said the wide balance of payments gap coupled with a high current account deficit will prevent any sharp gains.

(Polling by Shaloo Shrivastava; Editing by Kim Coghill)