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RMB depreciation to continue into Q3 2019 - BoCom

RMB depreciation to continue into Q3 2019 - BoCom

(12 June 2019 - China) Beijing is expected to keep its currency stronger than seven Renminbi (RMB) to a US dollar at least until a possible meeting between President’s Xi Jinping and Donald Trump in late June 2019 according to Bank of Communications International (BoCom).

US Treasury Secretary Steve Mnuchin said China was letting the value of the RMB slide to offset trade war tariffs as Beijing had stopped intervening in the market, intentionally devaluing the Chinese currency. Analysts however stated the Chinese central bank had no intention of sharply weakening the currency, especially since trade talks between Washington and Beijing were still ongoing.

China faces rising tariffs imposed by the Trump administration and last week the People’s Bank of China (PBoC) Governor, Yi Gang, said there was no “red line” for the exchange rate of the RMB against the US dollar. This statement triggered fresh speculation among investors about Beijing’s willingness to weaken its currency to offset US tariffs.

Hong Hao, BoCom's head of research, said “The three-month tenure estimate is basically based on the positions we can see built by foreign-exchange traders for now. A weakened valuation of the RMB is decided by the recent tough trade environment China is facing.”

Currency forecasts captured as part of East & Partners Global Business FX research reveals corporates across Hong Kong, Malaysia, the Philippines and Singapore hold vastly different expectations on where the USD/RMB will trade by December 2019. The variance in currency forecasts reflects underlying uncertainty prevailing in FX markets. Direct interviews with 1,858 show Singaporean and Filipino enterprises are the most bearish with an average forecast below 6.808 while importers and exporters in Hong Kong and Malaysia forecast the currency to depreciate above 7.884. Region wide the average USD/RMB forecast of 7.344 supports the notion that the currency will trade ‘lower for longer’ in H2 2019.

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