Iris Pang, economist at ING, explains that the USD/CNY in 1Q19 depreciated by 0.18% but the high-low volatility was still quite small at 1.8% and this tells us that the central bank has carefully managed exchange rate movements.
Key Quotes
“The central bank has to make the yuan flexible enough to follow the dollar index’s movements, i.e. when the dollar rises, the yuan weakens. But it also had to cater to political needs by depreciating the yuan when there were trade talks to defy what President Trump said: “the yuan cannot depreciate if there is any trade deal”
“Our forecasts for USD/CNY at 2Q19 and 3Q19 are 6.85, which may have to be revised as the central bank has managed the yuan in a very narrow range. But our year-end forecast at 6.75 seems to match what the central bank is doing. At least for now.”
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