12 Jan 2016
China-led ‘currency war’ quite unlikely – UOB
FXStreet (Edinburgh) - Strategists at UOB Group have so far ruled the likeliness of the RMB prompting a ‘currency war’, despite the expected weakness around the Chinese currency.
Key Quotes
“YTD, the RMB has depreciated 1.5% since the start of 2016, following a 4.7% decline in 2015, raising concerns of further weakness in the currency and the possibility of a “currency war” of competitive devaluations”.
“However, we are sceptical of a need for China to engage in such policy given that it is still running a comfortable trade surplus for most of 2015 and the trend is likely to remain”.
“Further, in order to achieve real positive impact on trade competitiveness, a substantial devaluation, at least more than 20%, may be required which could certainly ignite a “currency war” and spark responses from the US during an election year and from the IMF which admitted the RMB to SDR basket late 2015”.
“Further, one should focus on the RMB index to have a clear sense where the currency is headed, instead of just against the USD”.
Key Quotes
“YTD, the RMB has depreciated 1.5% since the start of 2016, following a 4.7% decline in 2015, raising concerns of further weakness in the currency and the possibility of a “currency war” of competitive devaluations”.
“However, we are sceptical of a need for China to engage in such policy given that it is still running a comfortable trade surplus for most of 2015 and the trend is likely to remain”.
“Further, in order to achieve real positive impact on trade competitiveness, a substantial devaluation, at least more than 20%, may be required which could certainly ignite a “currency war” and spark responses from the US during an election year and from the IMF which admitted the RMB to SDR basket late 2015”.
“Further, one should focus on the RMB index to have a clear sense where the currency is headed, instead of just against the USD”.