AED/CNY Outlook:
Bearish, as the rate is below its recent average and approaching recent lows with one primary factor weighing down.
Key drivers:
• Rate gap: The UAE Dirham’s interest rate aligns with that of the US Federal Reserve, while the Chinese Yuan's interest rate has recently been reduced, benefiting the yuan.
• Risk/commodities: With global oil prices under pressure, this impacts the UAE's foreign reserves and overall economic strength, often leading to lower AED value against the yuan.
• Monetary policy changes: The People's Bank of China’s recent interest rate cuts aim to stimulate economic activity, giving the yuan a comparative advantage.
Range:
The AED/CNY is likely to drift within its recent range, potentially testing the lower end.
What could change it:
• Upside risk: A significant increase in global oil prices that boosts UAE foreign reserves could strengthen the AED.
• Downside risk: Continued weakness in the Chinese economy leading to further yuan appreciation would likely keep the AED under pressure.
