FX Flash
Group Economics Macro & Financial Markets Research
13 October 2016
No change in yuan policy bias Higher USD/CNY fix in line with regional currencies
Roy Teo
Target: 6.80 by the end 2016
Senior FX Strategist Tel: +65 6597 8616 roy.teo@sg.abnamro.com
Higher USD/CNY fix in line with regional currencies After China’s National Day Golden Week holiday last week, the People’s Bank of China has fixed a sharply weaker yuan against the US dollar from 6.6778 on 30 September to 6.7296 today. This has sparked market concerns that China policy makers are seeking to devalue the currency after keeping the currency stable between 6.60 and 6.70 from July to September. Weaker than expected exports growth in September is likely to fuel such market fears. However, we beg to defer. The Chinese yuan has held steady against currencies of China’s main trading partners, despite depreciating against the US dollar. In addition, our analysis show that the yuan is not an impediment to a recovery in exports in China. The PBoC has also stated that a weaker yuan may not necessarily lead to stronger exports growth due to China’s high import content. Target: 6.80 by end 2016 We maintain our view that a gradual depreciation path in the yuan remains more likely as capital outflow concerns have receded and producer price deflationary pressures have abated. Our 2016 year-end target for USD/CNY is 6.80 (not materially different from what is implied by 3 month USD/CNY non-deliverable forward). CNY stable against basket of currencies since July Level
Chinese yuan level is not an impediment to exports %
Reverse scale %
107
50
105
40
103
30
101
20
0
99
10
5
97
0
-5
10
-10
95 93 Dec-14
-10
Jun-15
Dec-15
Jun-16
-20 Jan-14
Jan-15
Jul-15
Export growth CNY YoY% (lhs)
CNY Index
Source: CFETS, ABN AMRO
15
Jul-14
Jan-16
CNY NEER YoY %(rhs)
Source: Customs General Administration PRC, BIS
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