20 Oct 2015
CNY: Renminbi no longer significantly undervalued - MUFG
FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, notes that the US Treasury has softened their criticism of China’s currency policy by no longer stating that the renminbi is “significantly undervalued” and replacing it with the description that it is “below its appropriate medium-term valuation”.
Key Quotes
“The onshore USD/CNY rate appears to be stabilizing in the near-term close to the daily fixing rate at just above the 6.3500-level while the offshore USD/CNH rate is trading closer to the 6.4000-level.”
“In their latest semi-annual report released overnight the US Treasury judged that “given economic uncertainties, volatile capital flows and prospects for slower growth in China, the near-term trajectory for the renminbi was difficult to assess”. The report stated that market forces are exerting downward pressure on the renminbi at present, but that these pressures are likely to be temporary.”
“The temporary forces included the unwinding of carry trades, which had originally been encouraged in part by expectations for further renminbi strength. The US Treasury estimates that capital outflows from China have totalled around USD520-530 billion in the first eight months of this year. The pace of capital outflows accelerated after the mini-devaluation of renminbi totalling an estimated USD200 billion in August. In recent months the pace of capital outflows has eased as the Chinese authorities have helped to stabilize the renminbi.”
“The US Treasury indicated that they are still reserving judgement on the long-term intentions of China. The implementation of the new daily USD/CNY fixing mechanism and whether they allow the renminbi to respond flexibly to appreciation as well as depreciation pressures will indicate how responsive the new mechanism is to market forces.”
“The US Treasury has been calling for China to adopt a more market determined renminbi. China would leave itself open for criticism if it displayed greater resistance to market pressures for a stronger renminbi. However, at the current juncture that is unlikely to become a policy issue given that market forces are pressuring the renminbi lower in the near-term.”
“The US Treasury shares the view of our analysts in Hong Kong that the renminbi remains undervalued. Market pressures will likely keep the renminbi under downward pressure in the near-term which we expect to result in a modest up lift for USD/CNY heading into next year.”
Key Quotes
“The onshore USD/CNY rate appears to be stabilizing in the near-term close to the daily fixing rate at just above the 6.3500-level while the offshore USD/CNH rate is trading closer to the 6.4000-level.”
“In their latest semi-annual report released overnight the US Treasury judged that “given economic uncertainties, volatile capital flows and prospects for slower growth in China, the near-term trajectory for the renminbi was difficult to assess”. The report stated that market forces are exerting downward pressure on the renminbi at present, but that these pressures are likely to be temporary.”
“The temporary forces included the unwinding of carry trades, which had originally been encouraged in part by expectations for further renminbi strength. The US Treasury estimates that capital outflows from China have totalled around USD520-530 billion in the first eight months of this year. The pace of capital outflows accelerated after the mini-devaluation of renminbi totalling an estimated USD200 billion in August. In recent months the pace of capital outflows has eased as the Chinese authorities have helped to stabilize the renminbi.”
“The US Treasury indicated that they are still reserving judgement on the long-term intentions of China. The implementation of the new daily USD/CNY fixing mechanism and whether they allow the renminbi to respond flexibly to appreciation as well as depreciation pressures will indicate how responsive the new mechanism is to market forces.”
“The US Treasury has been calling for China to adopt a more market determined renminbi. China would leave itself open for criticism if it displayed greater resistance to market pressures for a stronger renminbi. However, at the current juncture that is unlikely to become a policy issue given that market forces are pressuring the renminbi lower in the near-term.”
“The US Treasury shares the view of our analysts in Hong Kong that the renminbi remains undervalued. Market pressures will likely keep the renminbi under downward pressure in the near-term which we expect to result in a modest up lift for USD/CNY heading into next year.”