BUZZ-COMMENT-Yuan bears betting on Trump tariffs are short-sighted

Feb 11 (Reuters) - Most traders see the yuan weakening ahead, whether by intentional devaluation amid the trade standoff between China and the U.S., or due to economic weakness prompting more monetary policy easing. Those views could be short-sighted.

The latest Reuters Asia FX positioning poll reveals long USD/CNY bets may have been trimmed, but remain among the most popular positions. Yet the shrinking premium between the freely traded USD/CNH and onshore USD/CNY suggests that yuan bearishness has tapered off considerably.

While the market awaits trade discussions between the Chinese and U.S. presidents, a risk rally in Chinese equities triggered by hype for AI breakthroughs is attracting inflows and propping up the yuan.

The potentially game-changing advance has stirred investor spirits as it lifts Chinese stocks broadly due to FOMO; it may have a multiplier effect as stock market rallies can influence consumption behaviour. Beijing is riding on the improved mood by reiterating its pledge to boost residents' incomes to spur spending.

As the threat of harsher U.S. trade tariffs lingers, China will place more emphasis on expanding domestic demand, and may be emboldened to consider stronger economic stimulus measures at the early March meeting of the National People's Congress.

Yuan bears are not anticipating a Chinese consumption rebound - or a U.S. trade reprieve, but there might be glimmers of hope.

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