CNY: Modestly constructive for 2018 - ANZ

According to Irene Cheung, Research Analyst at ANZ, outflow pressures are contained and foreign inflows could potentially increase and they forecast a modest appreciation in the CNY in 2018 to 6.55.

Key Quotes

“The RMB Index is set to remain within its recent stable ranges.”

“CNY looks set to remain broadly stable now that capital outflow pressures have eased. The authorities will want to maintain the CFETS RMB Index within a stable range, even as they allow the yuan to be more market determined.”

“Although the PBoC has stepped away from active intervention in the FX market, guidance through the counter cyclical factor in the daily fixings will continue. The rise in CGB yields and our expectation that the 7-day reverse repo rate will be adjusted higher next year help to maintain currency stability.”

“Demand for onshore China portfolio assets has been robust. The potential for onshore China bonds to be included in global benchmark indices will be positive for the currency, if realised.”

“Further opening up of certain sectors to foreign investors will also help to generate inflows. Easing back on capital outflow measures will only occur if the authorities are confident that there are sustained inflows to balance.”

“The RMB is at a level that is near equilibrium, and hard landing concerns over the Chinese economy have subsided.”

“Manageable outflows, a continuation of trade surpluses and increased foreign investor asset allocation to China should see a modest appreciation of the CNY against the USD next year.We forecast USD/CNY to end 2018 at 6.55.”