China Market Monitor: CNY Weakness Continues As Rates Move Lower

Published 07/17/2018, 02:51 AM

The continued escalation of the US-China trade war has led to more monetary easing through lower money market rates and further downside pressure on CNY. The CNY basket has depreciated 3½% since mid-June. We expect the weakening pressure on CNY to persist, although the People's Bank of China (PBoC) will aim to make it an 'orderly depreciation' to avoid a strong pick-up in capital outflows as in 2015/16, see also FX Strategy: Downward revision to our CNY outlook , 26 June 2018.

CNH money market rates have moved lower indicating, that the PBoC is not yet too concerned about the pace of CNY weakening (higher CNH money market rates have previously been used to stem sharp depreciation pressure).

Chinese stocks have stabilised despite the rising trade tensions. Valuation is starting to look attractive. Bond yields keep declining. Metal prices sharply lower.

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