FXStreet (Delhi) – Research Team at Goldman Sachs, suggests that the publication of a new CNY exchange rate index on December 11th reinforces other recent statements suggesting an increased focus on broader (trade-weighted) CNY moves rather than simply bilateral moves versus the US dollar.
Key Quotes
“In our view, this reinforces the likelihood of moderate depreciation versus the USD, should the broad USD continue to strengthen per our forecast.”
“Looking ahead, the news does not necessarily mean the PBOC will now peg the RMB on this basket. In recent days, the RMB depreciated not only against the USD, but indeed by even more against this CFETS basket (by 1.3% since Dec 3rd, by our calculation). It remains to be seen whether the PBOC may decide to explicitly adopt this basket at some point in the future.”
“In any case, however, in our view, the fact that the authorities have increasingly drawn public focus to RMB’s performance on TWI basis rather than simply against USD reinforces the likelihood of moderate depreciation versus the USD, should the broad USD continue to strengthen per our forecast. This communication appears to signal the authorities’intention to maintain broad CNY stability in TWI terms, and may also make it easier for the authorities to offset USD strength without causing a major increase in policy uncertainty or expectations of a sharp one-off devaluation ahead. Taken in conjunction with our global currency views, our baseline forecast of USDCNY at 6.60 on a one-year horizon implies a small (roughly 2.4%) appreciation of the CNY vs. the new basket over the coming year.”
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