Goldman Turns Bearish On The Yuan

Goldman: the chances of RMB depreciation have increased for two reasons:

(1) it will be harder for the government to defend the currency given the additional tariffs

(2) part of the reason for China to defend the exchange rate was to facilitate the trade negotiations

SocGen: “As we have learned in the past, fun­da­men­tals alone are in­suf­fi­cient for the Chi­nese yuan to break 7,” said Ja­son Daw, head of emerg­ing-mar­kets strat­egy at So­ciété Générale. “Pol­icy mak­ers have the tools to stop it and, put sim­ply, it is their choice what hap­pens.” While the Chi­nese cur­rency hasn’t breached that level in a decade, he said the odds of the yuan break­ing 7 in the next month or two has in­creased sub­stan­tially

On Fri­day, the yuan de­pre­ci­ated be­yond 6.9 to the U.S. dol­lar in the off­shore mar­ket, hit­ting 6.9769—its weak­est since No­vember. The on­shore yuan staged its big­gest sin­gle-day drop in 2½ months

NOTE: Chi­na’s cen­tral bank hasn’t set a mid­point for yuan trad­ing weaker than 6.9 since De­cem­ber

Macquarie: “I don’t think Bei­jing would use a mas­sive de­pre­ci­a­tion of the yuan as a tool to off­set the neg­a­tive im­pact from an es­ca­lat­ing trade war,” said Larry Hu, the Hong Kong-based head of greater China eco­nomics at Mac-quarie. “It’s a dou­ble-edged sword, as a sig­nif­i­cantly weaker yuan is go­ing to hurt in­vest­ment sen­ti­ment and cause cap­i­tal out­flows.”

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