China: Currency weakens despite favourable data – Commerzbank
|This morning, the PBoC raised its USD/CNY exchange rate fixing again, paving the way for a slightly weaker CNY, Commerzbank's FX analyst Volkmar Baur notes.
PBoC allows mild CNY weakness despite strong GDP
"The fixing, around which the USD/CNY exchange rate is then allowed to fluctuate within a 2% band, was the highest since September 2023 and shows that the Chinese government can live with a slightly weaker currency, but wants to keep the daily movements relatively small so that the market does not develop too much momentum of its own."
"Looking at this morning's economic data, one could be forgiven for thinking that a weaker currency is not needed at all. First quarter GDP growth was surprisingly strong at 5.4% y/y (expected 5.2%) and the monthly data for March also points to good momentum. However, given the sharp escalation in the trade war with the US since 2 April, these data are likely to be less meaningful than they might otherwise be."
"As such, the CNY is expected to continue to be driven by political rather than economic developments. And as the US-China divide appears to be hardening, a prolonged period of mild CNY weakness is more likely."
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