KUALA LUMPUR: The US dollar is expected to trade lower against most major currencies in the next six months as it goes through a “technical correction”, says GLT Capital Advisors president and chief executive officer Gary L Tilkin. He sees the yuan as one of the world’s better performing currencies this year despite its depreciation against the greenback last year. The yuan depreciated 2.5% against the US dollar in 2014, the largest annual fall since 2005.

“The US dollar has had a fairly good run recently. So probably, my opinion for the next six months, it could be lower against many currencies,” he told a news conference after a one-day conference on “Prospects for the Renminbi in Malaysia” by GLT Capital Advisors — a currency trading and advisory firm — yesterday. “There could be a correction in the near term. When we look at technicals, it has had a good upside move in order for a technical correction.”

“I wouldn’t say the US dollar has become extremely overbought, but a correction is needed in order for the [upward] trend to continue,” he said.

Tilkin also said although the time is ripe for a free float of currencies, it is still best for market forces to determine exchange rates. Certainly, free float of currencies can cause near-term volatility more than people would like at times, but we are probably reaching a time when it would make more sense for the currency to be free floating,” he said. “But let market forces determine that rather than artificial forces. I think in general it’s better to allow market forces to determine currency exchange rates.”

GLT Capital Advisors managing director Justin J Hertling said a growing number of Malaysian companies are of the view that using the yuan rather than the US dollar as a settlement currency in trade is better for their bottom line performance.

“Some market observers, as well as many Chinese banks in Malaysia, have noted that if a company puts about 30% to 40% of its holdings in yuan rather than the US dollar as a settlement currency, it will see a much better bottom line,” he said.

However, Hertling said, as Chinese economic and financial bodies released lower-than-expected growth numbers, observers have a slightly pessimistic view of the yuan’s performance in the second quarter.

“I think most analysts want to reassess the next quarter in order to determine the rest of 2015,” he said.

Hertling also said announcements on the monetary policy that would affect the value of the yuan can be expected from China’s leadership in the coming months. The leadership will be more in a position in the coming months to make a determination on whether they want to keep the yuan at a more depreciated state and prop up the export market, or whether they want to encourage a correction in order to align fundamentals with what the market is actually seeing.

The yuan was trading at 6.2081 against the greenback yesterday.

This article first appeared in The Edge Financial Daily, on April 29, 2015.