FXStreet (Edinburgh) – Kit Juckes, Strategist at Societe Generale, expects the Chinese currency to lose further ground in the medium term.
Key Quotes
“With the PBOC fixing CNY effectively unchanged from yesterday, there’ll be plenty of people downplaying the significance of this week’s moved. A 3% fall against the dollar for a currency which has appreciated in real terms by 50% over a decade?”.
“The CNY may not even be the biggest faller in currency-land this week (the Malaysian Ringgit is having a rotten time). But while headlines like ‘China joins the currency wars’ are a wide off the mark, the symbolism of this week’s move is important and it sends two messages”.
“Firstly, that the continued weakening trend of the Chinese economy requires a further policy response, and secondly that the PBOC is willing to use all available policy tools to react”.
“And since I expect the Chinese economy to go on slowing, I’d conclude that, albeit at a more measured pace and with less fanfare than this week, we’ll see more CNY weakness in the weeks and months ahead, which in turn will feed through to more weakness overall for Asian currencies against the dollar, and also, as has happened this week, more weakness for commodity prices overall”.
“More downward pressure on commodity exporters, more downward pressure on US and European import prices”.
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