14 Mar 2016
Chinese yuan to weaken on further on cyclical factors – Goldman Sachs
The Chinese currency is expected to weaken further this year, analysts at Goldman Sachs (GS) noted in their recent report published via Bloomberg.
Key findings from the GS report:
Chinese yuan probably not far off its fair value but should weaken further on cyclical factors
large debt overhang from rapid growth in credit extension in recent years will likely imply lower interest rates and consequently add to depreciation pressure
previous build-up of Yuan's TWI appreciation over many years has weighed on export growth
estimates that capital outflows totalled $550bln in H2 2015 of which 30% was for fx debt repayments, about 60% because of Chinese residents buying fx assets
outflows could remain around $700bln in 2016
fx reserves of $3.2trln look adequate by most metrics, except for those related to M2, estimates at least $2trln resides in liquid assets
baseline view of USDCNY of 7.0000 at year-end is based on expectation that RMB will be largely stable against CFETS basket
Key findings from the GS report:
Chinese yuan probably not far off its fair value but should weaken further on cyclical factors
large debt overhang from rapid growth in credit extension in recent years will likely imply lower interest rates and consequently add to depreciation pressure
previous build-up of Yuan's TWI appreciation over many years has weighed on export growth
estimates that capital outflows totalled $550bln in H2 2015 of which 30% was for fx debt repayments, about 60% because of Chinese residents buying fx assets
outflows could remain around $700bln in 2016
fx reserves of $3.2trln look adequate by most metrics, except for those related to M2, estimates at least $2trln resides in liquid assets
baseline view of USDCNY of 7.0000 at year-end is based on expectation that RMB will be largely stable against CFETS basket