According to analysts from Danske Bank, the current slowdown in economic activity in China, underlines continued downward pressure on CNY.
Key Quotes:
“Chinese PMI released overnight was very weak and points to more slowing in Q4. The official PMI manufacturing decreased to 50.2 (Consensus 50.6) in October, down from 50.8 in September. This is the lowest level in two years. In particular, new export orders are very weak, highlighting the negative effect of the trade war with the US.”
“We look for more weakness in coming quarters before a rebound in 2019 when the stimulus kicks in more and we expect to a trade deal at some point in the year. We believe infrastructure and housing will support growth. China could also very well announce further tax cuts for households to unleash more consumption. Both private investment and consumption have been soft, – probably related to the uncertainty on the trade war.”
“While the trade war is clearly painful for China in the short term, we do not believe it changes the negotiating stance with the US in the trade war.”
“The slowdown underlines continued downward pressure on CNY. We continue to see USD/CNY rising to 7.20 in 12M, up from 6.969 currently.”