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China intend to keep it stable - how ? - Rabobank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 12, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Guatemala) - Michael Every, Head of Financial Markets reseasia, Asia Pacific, explained that it was reiterated that China will not weaken its currency“to gain unfair competitive advantage,” (despite a recent Reuters report that other officials urging exactly that path) and that it intends to keep CNY “stable” against a basket of currencies.

    Key Quotes:

    "That is the same basket against which China has appreciated 12% since mid-2014 even as the economy has slowed, which is hardly the definition of stability as most would understand it. Indeed, it was also stated once again that we can expect “two-way volatility” in USD/CNY going forward, which does not sound stable either.

    While FX speculators were the likely audience for all this, it is arguably local holders of CNY looking to diversify into other currencies that are the real problem – the capital flight we are seeing from China is not being driven by foreign money.

    In that regard, Han Jan also admitted that China’s economic growth hasn’t hit bottom yet; that the government will refrain from “strong” economic stimulus; and that investors should expect “a long period” with an L-shaped growth path and rising unemployment, instead of a U- or V-shaped recovery. Presuming this will also mean even lower interest rates and a further increase in debt-to-GDP ratios, does that sound compatible with a stable currency (i.e., people keeping all their assets in CNY), especially if the US raises interest rates again?"
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