Further downside lies ahead for CNY – Danske Bank

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

Key Quotes

“We look for CNY to weaken gradually as growth is under pressure, debt risks are rising, the Fed is resuming rate hikes and net FDI flows are no longer positive for China.. However, we do not expect a bigger devaluation as the CNY is not overvalued and China wants stability for its currency. However, against EUR, we still expect CNY to depreciate close to 10% on a 12M horizon”.

“The CNH-CNY spread moved into negative territory in early January as the CNH strengthened sharply on the back of Chinese intervention in the offshore market, which led to a big capitulation of short CNH positions. However, we expect the spread to come back gradually to around zero as the situation calms down again”.