RMB: Releasing the pressure - Nomura

Analysts at Nomura believe that a more flexible FX policy (at this juncture) would exert depreciation pressure on RMB, especially amid ongoing local growth challenges, the notable expansion of monetary policy and worsening global external conditions (e.g., Sino-US trade tensions, EM stress and DM policy normalisation/quantitative tightening).

Key Quotes

“We acknowledge there could a potential Trump-Xi bilateral meeting at the upcoming G20 summit (30 November-1 December 2018), which could raise hopes of a negotiated truce in the ongoing US-China trade saga.”

“We remain cautious on this hope, as the meeting may not even be held. However, even if the two president’s meet, they will unlikely reach an agreement, as the issues go beyond trade. In addition, President Trump is unlikely to step back from current tariffs on China, and the path is set for tariffs to reach 25% on USD200bn of Chinese products from the start of 2019, while the threat of tariffs on the remaining USD267bn of Chinese imports lingers. As such, we maintain our view that USD/RMB will likely break above 7.0.”