Allan von Mehren, Chief Analyst at Danske Bank, expects the Chinese currency to grind lower in the next months.
Key Quotes
“USD/CNY has fallen significantly recently, which reflects declining Fed rate expectations and the PBoC’s increased focus on the trade-weighted RMB”.
“Hence, we have lowered our 1M forecast to 6.60, from 6.65. Still, given the divergence in monetary policy and that CNY is more market based, we look for a further depreciation of the CNY against the USD of around 7% over the next 12 months”.
“We expect market pressure to continue, although China has shown a stronger willingness to defend the currency by draining liquidity in the CNH market”.
“We still do not expect a big devaluation of the trade weighted CNY, as this would be likely to backfire and escalate capital outflows”.
(Market News Provided by FXstreet)