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China is letting the CNY weaken for now – TDS

Analysts at TD Securities note that today’s CNY fix was the biggest since 27 June 16 as the fixing was lower than most models, largely reflective of the USD move but not entirely.

Key Quotes

“On a trade weighted basis (CFETS index) CNY is now at its weakest since August 20017. There is no doubt that China is letting the CNY weaken for now. As we noted in our latest CNY piece overnight the CNY NEER is being used as a shock absorber and main adjustment variable for monetary conditions to buffer the economy.”

“Also CNY has dropped 8% since mid April, a nice counterbalance to 10% tariffs on Chinese goods. Goes without saying that the rest of Asia especially KRW, TWD, etc will get dragged lower. I still think China will not allow this to get out of hand. As soon as they get a whiff of domestic panic ie increased capital outflows they will step in, but clearly they’re not that concerned yet.”

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