CNY faces further depreciation – Danske Bank

Chief Analyst at Danske Bank Allan von Mehren believes the Chinese currency could lose further ground in the next months.

Key Quotes

“We look for CNY to continue the gradual trend of weakening. China’s continues to face challenges with (a) rising financial risks, (b) overcapacity and (c) too much dependence on investments. This will keep downward pressure on medium-term growth. We also see a rising risk of a trade war with the US, which would hurt Chinese exports. Against EUR, we still expect CNY to depreciate by nearly 10% on a 12M horizon”.

“The CNH-CNY spread moved sharply into negative territory in early January as the CNH strengthened rapidly on the back of Chinese intervention in the offshore market, which led to a big capitulation of short CNH positions. However, the spread is now back around zero. We expect it to stay here but we can see periods of the spread moving in either direction”.