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China: Another devaluation coming for RMB? – Goldman Sachs

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 1, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) – Research Team at Goldman Sachs, suggests that the market is increasingly nervous about, and is thus pricing the possibility of, another one-time deval.

    Key Quotes

    “Oddly enough, expectations of such a move were greatly diminished in Q4 2015, as the PBoC seemed willing to let the fix fluctuate in line with broader move in the DXY, specifically announcing a basket of ccys in December that they would track the value of the RMB against.

    That stance however seems to have taken a back seat in January 2015, as signalled by the stability of the fix, which has persistently printed well short of the prediction of any respectable regression-based model. In other words – the market initially priced out the likelihood of another sudden/gap move in the ccy, acknowledging that the rmb was increasingly behaving like a free-floating ccy, especially after its inclusion in the IMF’s SDR basket. But with spot now being artificially held down, and the authorities bleeding reserves at such a disturbing rate, many are now asking: how long can this last for, and what can they possibly do next?”
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