Bias: Bearish-to-range-bound, as the AED is below the 90-day average and in the lower half of its 3-month range.
Key drivers:
- Rate gap: The UAE Dirham maintains a stable peg to the US Dollar, while the People's Bank of China is working to stabilize the yuan through measures like issuing offshore bills, affecting relative strength.
- Risk/commodities: Oil prices are currently below average, which could pressure the UAE economy and, in turn, the Dirham, impacting trade balances.
- Economic indicators: The recent CNY weakness indicates challenges for China, though ongoing stimulus measures may eventually support the yuan.
Range: The AED/CNY pair is likely to hold within its recent range, without significant upward movement given its current position.
What could change it:
- Upside risk: If the Chinese economy shows unexpected recovery or improved trade conditions, it may strengthen the yuan against the Dirham.
- Downside risk: A sustained drop in oil prices could further weaken the AED, resulting in lower valuation against the yuan.
