RMB: Still expect depreciation but at a more gradual pace – Deutsche Bank

Analysts at Deutsche Bank are revising their USDCNY forecast to 6.9 by end of this year, 7.1 in 2018, and 7.4 in 2019 as before revision it was 7.1, 7.6 and 7.9 respectively.

Key Quotes

“The revision for this year is due to the surprisingly weak US dollar against the other currencies, and the upside risk in China’s growth outlook in H2. The revision for 2018 and 2019 is mostly driven by our forecast revision for EURUSD, as our FX strategists have a more positive view on Euro than before.”

“We still expect a moderate but persistent depreciation against the PBoC basket, by 2.2%, 2.7% and 4.9% in 2017-19. The key driver of this depreciation pressure is the property bubble in China. The large wealth effect from the property bubble will continue to push up domestic demand for imports. We therefore expect the current account surplus to drop to 1.3% of GDP in 2017 and 1.1% in 2018 (1.8% in 2016), with risks on the down side.”