Limited scope for further RMB depreciation against USD in the near term – Nomura

Analysts at Nomura explained that on the exchange rate, we believe there is limited scope for further RMB depreciation against USD in the near term.  

Key Quotes:

“The PBoC intervened in early August when USD/CNY breached the psychologically important 6.9 level. With the resumption of direct intervention in the USD/CNY fixing, much tighter capital controls and still relatively large FX reserves (USD3.1trn as of end-August), we believe the PBoC is both willing and able to deliver a relatively stable USD/CNY around current levels for the time being.”

“The PBoC appears reluctant to let USD/CNY move higher, in our view, on domestic stability concerns and because of ongoing negotiations with the US on trade issues.”

“We believe the PBoC has no intention to force RMB to appreciate either, as it needs to stem the ongoing growth slowdown.”

“Over the longer term, we believe capital outflow pressures still loom on a structurally lower trade surplus, continued monetary policy easing despite the fact that other major central banks have already entered monetary policy normalisation cycles, and the large quantity of maturing offshore dollar bonds in coming quarters. We expect capital controls to be tightened further.”