By Rahul Karunakar
(Reuters) - The Chinese yuan and the Indian rupee are expected to weaken, although less than previously thought, reversing recent gains as rising chances of a U.S. interest rate hike this month boost the dollar, a Reuters poll found.
Since the start of the year, most Asian currencies have risen against the dollar, as uncertainty about President Donald Trump's economic policies hurt the greenback.
But the dollar bounced back this week after a few Federal Reserve policymakers raised expectations for a March rate increase.
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Fed officials over the past few days suggested that rates need to go up sooner rather than later to avoid falling behind the curve on inflation in the face of proposed economic stimulus from Trump's administration.
That has dented the outlook for emerging market currencies more broadly, according to the latest poll of more than 60 foreign exchange analysts taken over the past week.
The view for a weaker yuan also stands alongside Trump's accusations that Beijing has devalued its currency to gain a trade advantage and as China struggles to stem capital outflows depleting its FX reserves.
The yuan, which has risen almost one percent so far this year, is forecast to weaken to 7.03 by the end of August, and eventually to 7.12 by this time next year - a fall of more than 3 percent from Tuesday's close of 6.88.
While those expectations were less bearish compared with the findings in the previous month's poll, if the 12-month consensus is realized, it would mark the lowest for the yuan in almost a decade - a view held for a few months now.
"With the dollar remaining the key driver of currency markets, the U.S. Fed rate hike profile remains pivotal to the outlook. Looking ahead, we expect CNY to depreciate against USD, albeit only as much as DXY (the dollar index) strengthens," wrote Elliot Clarke, senior economist at Westpac.
A separate Reuters poll confirmed trader sentiment toward most emerging Asian currencies worsened, with bets on the Chinese yuan turning slightly bearish, although positioning was still close to being neutral. Bucking the trend was the Indian rupee, with bullish bets increasing to the highest level since January 2015.
Still, the latest poll showed the rupee, which has gained almost 2 percent this year, was forecast to weaken over 3 percent to 68.84 in a year from 66.72 it was trading on Thursday.
But that consensus shows analysts are less pessimistic compared with a poll in February as the Reserve Bank of India surprised markets last month by keeping rates on hold.
The central bank also unexpectedly shifted its policy stance to neutral from accommodative, citing a build-up in inflationary pressures and could cap any sharp fall in the rupee.
(Polling by Shaloo Shrivastava and Khushboo Mittal; Editing by Jacqueline Wong)