China: Unabated weakening of the CNY
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The CNY continues to weaken against the USD. We see a clear risk of further depreciation and continue to recommend a hedging of receivables.
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USD/CNY fixing by PBoC also creeping higher. However, this is mostly a reflection of market moves rather than a deliberate attempt to weaken the currency. Indeed, the USD/CNY is fixed stronger than yesterday's closing level, which suggests the People's Bank of China (PBoC) aims to dampen the depreciation as part of the ‘countercyclical factor' of the fixing. CNH money market rates have been stable, however, which indicates the PBoC is not making any strong attempt to stop the CNY weakening, as it is increasingly allowing the markets to determine the currency as long as it does not risk causing instability. CNY weakness is a natural response to monetary policy easing.
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Chinese stocks, bond yields and metal prices continue to decline.
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