China: CNY depreciation pressure to continue – Danske Bank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 23, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
    Likes Received:
    FXStreet (Delhi) – Research Team at Danske Bank, notes that the Chinese currency has weakened further after the Fed hike on 16 December, and USD/CNY is now at its highest level since 2011 at 6.4837.

    Key Quotes

    “A clear sign that the pressure on CNY is intact is that the CNH-CNY spread remains high, indicating that foreign selling is taking place in the CNH market.”

    “In line with our expectations the pressure intensified after China was included in the SDR on 30 November. In addition, on 11 December the People’s Bank of China announced on its website that the China Foreign Exchange Trade System (also known as CFETS) has introduced a CFETS exchange-rate index for the purpose of guiding market participants to shift their focus from the bilateral RMB/USD exchange rate to the effective exchange rate, which is based on a basket of currencies.”

    “The announcement supports our view that the Chinese authorities will allow for a gradual depreciation of the CNY (and CNH) versus the USD. The trade-weighted CNY is very strong from a historical perspective and has substantial room to depreciate versus the USD.”

    “We look for a further moderate rise of USD/CNY to 6.65 in 12M, with the risks being skewed towards a greater weakening of the CNY versus USD as the Fed may have to tighten policy more than we expect. Given our bullish forecast for EUR/USD (we target 1.16 in 12M) we look for a substantial increase in EUR/CNH towards 7.71 in 12M.”
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