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4 Feb 2015
China to refrain from joining the global FX war – Danske
FXStreet (Barcelona) - Flemming Nielsen, Senior Analyst at Danske Bank, expects China to avoid entering the global currency war, with the largely unchanged USD/CNY trading band suggesting that PBoC is not interested to target a lower CNY to support growth.
Key Quotes
“Looking ahead, we expect the PBoC to cut the RRR by another 50bp within three months. We do not expect it to cut the leading interest rates further.”
“In our view, we are not entering a phase of more substantial monetary easing in China, but we also underscore that it probably remains in a phase of managed deleveraging where the policy focus will remain on containing credit growth and managing financial risks. Hence, we are unlikely to see a sharp pick up in credit growth.”
“We expect a moderate recovery in Chinese growth in H1 15 supported by modest monetary and fiscal easing and some improvement in global growth, but we do not expect a strong recovery. (PMIs are unlikely to improve above 52, in our view.)”
“We do not expect China to join the global currency war and allow the CNY to depreciate markedly to support growth.”
“Admittedly, there has been depreciation pressure on the CNY recently and USD/CNY has recently been trading close to the ceiling in the daily trading band. However, the USD/CNY fixing used to fix the daily trading band has been kept largely unchanged, suggesting the PBoC is not targeting a weaker CNY to support growth.”
“Looking ahead, we expect we expect the CNY to strengthen within the daily trading band supported by a markedly higher trade balance surplus.”
“We think the daily trading band will eventually be widened further but not until late 2015/early 2016 in our view (currently +/- 2%).”
Key Quotes
“Looking ahead, we expect the PBoC to cut the RRR by another 50bp within three months. We do not expect it to cut the leading interest rates further.”
“In our view, we are not entering a phase of more substantial monetary easing in China, but we also underscore that it probably remains in a phase of managed deleveraging where the policy focus will remain on containing credit growth and managing financial risks. Hence, we are unlikely to see a sharp pick up in credit growth.”
“We expect a moderate recovery in Chinese growth in H1 15 supported by modest monetary and fiscal easing and some improvement in global growth, but we do not expect a strong recovery. (PMIs are unlikely to improve above 52, in our view.)”
“We do not expect China to join the global currency war and allow the CNY to depreciate markedly to support growth.”
“Admittedly, there has been depreciation pressure on the CNY recently and USD/CNY has recently been trading close to the ceiling in the daily trading band. However, the USD/CNY fixing used to fix the daily trading band has been kept largely unchanged, suggesting the PBoC is not targeting a weaker CNY to support growth.”
“Looking ahead, we expect we expect the CNY to strengthen within the daily trading band supported by a markedly higher trade balance surplus.”
“We think the daily trading band will eventually be widened further but not until late 2015/early 2016 in our view (currently +/- 2%).”