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The Chinese Yuan is seen grinding lower in the near term, according to Morten Helt, Senior Analyst at Danske Bank.

Key Quotes

“Chinese assets are in focus as the CNY continues to weaken. USD/CNY moved above 6.80 overnight for the first time in more than a year after the People’s Bank of China weakened the USD/CNY fixing by 0.9% to 6.7671. This was the largest daily weakening of the CNY fixing in two years”.

“USD/CNH has increased to 6.8133 and that CNH is now trading quite a bit weaker than CNY is a clear sign of depreciation pressure. With exports under pressure, China is probably happy with a weaker currency and there is no sign yet of a strong attempt to stop the depreciation, as offshore money-market rates are not pushed markedly higher to ‘defend the currency’.

“We continue to see downside pressure on the CNY, as there are no signs of a thawing in the trade war (no negotiations) and we expect to see more monetary policy easing to support the economy going into the trade war with the US”.