A weaker CNY remains on the cards – Danske Bank

Chief Analyst at Danske Bank Allan von Mehren sees the Chinese currency losing further ground in the next months.

Key Quotes

“We look for CNY to weaken gradually as growth is under pressure, debt risks are rising, the Fed is resuming rate hikes and net FDI flows are no longer positive for China.. However, we do not expect a very big devaluation, as the CNY is not overvalued and China wants stability on its currency. Against the EUR, we expect the CNY to depreciate close to 10% +12M”.

“The CNH-CNY spread has been quite stable since calm was restored in February. We expect the spread to stay at around zero or slightly above throughout the forecast horizon. Hence, we expect basis risk in hedging CNY exposure through CNH to be limited. If the spread moves out, the PBoC is likely to use higher CNH money-market rates (by draining liquidity) to pull it down close to zero again”.