USD/CNH: Pushed through psychological 6.60 level - Rabobank

Michael Every, Head of Financial Markets Research at Rabobank, notes that the USD/CNH has pushed through the psychological 6.60 level for the first time since February, something that caused market stress back then.

Key Quotes 

“Of course, it's only a small step from 6.59 the Friday before to 6.60 last Friday, but this was following a very weak US payrolls print that has put USD under broader downward pressure. As such it looks like further evidence that more Chinese currency weakness is to come. Indeed, while CNY may show greater resilience this week now the mainland is back from holiday, the PBOC notably set the fixing today at 6.5805 vs. 6.5593, or 212 pips lower. On that basis it's no wonder those bond yields are tumbling again. (Though perhaps this is just an insurance policy ahead of the Fed meeting to make absolutely certain nothing happens?)

Indeed, a senior IMF official has stated that China risks are "dangerous detours" if it doesn't deal with its soaring corporate debt pile immediately; this may now be 145% of GDP according to the Fund, or 165% according to Bloomberg, or maybe even more. (We keep trying to guesstimate it too, but it is a rapidly moving target - and the movement is in only one direction, up.) The fact that no one knows how big the problem is, is of course a big part of the problem.

So, a slowing economy (Chinese data this morning saw the big drop in investment, down to 9.5% y-oy vs. estimated 10.5%, though retail sales were in line at 10%), wobbly currency, huge debt problems: surely now is the right time for China to be included in the benchmark MSCI EM equity index, opening the door to greater inflows of foreign capital?”