CNY: Lower due to monetary policy – Commerzbank

Dr Jörg Krämer, Chief Economist at Commerzbank, notes that China's FX reserves rose by for the second straight month, up $6.4bn to $3.22tn following the $10.3bn gain in March.

Key Quotes

“This is largely the result of valuation changes rather than outright USD purchases by China’s central bank.

Since December China’s central bank follows the development of CNY against a basket of other currencies (CFETS Currency basket), no longer just the USD. The index shows a 5% depreciation of CNY since December.

We believe that there is little risk that CNY will depreciate sharply against USD (more than 5% this year) as the market has started to price in much less aggressive monetary policy tightening in the US.

Moreover, China still has a slew of measures to steer a “managed deprecation” in CNY. We thus have revised down our USD-CNY forecast to 6.65.

Slowing growth and further policy easing measures will inevitably weaken CNY over the remainder of the year.”