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Analysts at Nomura suggest that their survey on China FX and rates over the next three months, conducted from 18-20 July, highlights the market’s expectations for RMB to weaken against USD and 10Y Chinese Government Bond (CGB) yields to fall, although both are expected to remain in a range.

Key Quotes

“Specifically on FX, 64.8% expect USD/CNH to be in a range between current levels1 and 7.0, while 61.4% expect 10y CGB yields to be in a range between current levels2 and 3.25%.”

“It is clear that, although the market appears bearish on RMB (primarily on trade protectionism), it is not pricing in any significant depreciation, with only small proportion (13.6%) expecting USD/CNH to break through 7.0 in the next three months.”

“We broadly concur that 7.0 is likely a key threshold and could be held in the near term, but we would not underestimate near-term capital flight risks, especially amid more frequent periods of relatively fast RMB depreciation.”