Any hope for China's bruised yuan?
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ANY HOPE FOR CHINA'S BRUISED YUAN?
China's yuan has weakened steadily this year, and Barclays analysts on Monday took a look at some of the catalysts that could spark a rebound to see if any of those seem likely.
Spoiler alert: they say they do not.
The dollar has risen about 2.5% on China's yuan traded onshore CNY=CFXS so far this year, and is currently around its highest since November, on the back of broad dollar strength, weak Chinese activity and worsening external pressures.
So what factors could change that, and how meaningful are they?
Economic growth is the first thing Barclays considers. But high-frequency indicators point to slowing Chinese GDP and the analysts say they do not expect major stimulus announcements from a key meeting this month, the third plenum of this iteration of the Chinese Communist Party's central committee.
Then, there are capital inflows. But they don't see these as likely either, given deflationary pressures in China, as well as geopolitical tensions. These are unlikely to help if Donald Trump were to win November's U.S. presidential election.
On the U.S. side, Treasury yields could fall, causing China-U.S. rate differentials to narrow. But there is a slim chance of this happening dramatically, Barclays says. They only predict one rate cut from the Federal Reserve this year. (Market pricing leans towards two, but this wouldn't change the dial much).
Lastly is a more aggressive policy stance from China to stem weakness. The People's Bank of China have several tools they could use, but Barclays conclude that "in the past such measures have only stalled the inevitable, and we would expect the same if utilised against a market that remains overwhelmingly bearish CNY."
(Alun John)
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