Analysts at Commerzbank suggest that as far as the Chinese economy is concerned, a rapid appreciation of the renminbi cannot be in policy makers’ interest.
Key Quotes
“On the one hand, there is little doubt that an overly strong currency is harmful for trade growth and in view of struggling domestic demand as well as the tariffs still in place, there is little interest to put an additional burden on exporters.”
“On the other hand: The more expansionary monetary policy stance argues for a weaker CNY. Against this background, if the CNY rally were to continue, a pronounced a correction would become ever more likely. However, any strong exchange rate volatility would induce further stress into the already nervous financial system in China. Hence, Chinese policy makers will carefully manage the currency movements.”
“We still see fundamental arguments for a gradually weaker CNY.”
“The success or failure of trade talks will only determine from which level the renminbi will return to its slow and gradual depreciation trend.”
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