China: Slowdown but no hard landing - Danske Bank

Analysts at Danske Bank, see the USD/CNY moving to 7.2 in 12 months. They expect US and China monetary policies to move in opposite directions. 

Key Quotes: 

“Chinese growth has slowed down moderately in 2018 following two years of robust activity. Financial tightening and the deleveraging campaign are the main reasons, but uncertainty around the trade war has also weighed on activity in recent months.”

“The US-China trade war has escalated and we see a high probability of further escalation involving up to 25% tariffs on all US imports (worth USD505bn) from China. This could be a significant drag on Chinese growth.”

“China can counter this with an easier monetary policy and fiscal stimulus.”

“The People’s Bank of China (PBoC) has eased policy twice this year by lowering the Reserve Requirement Ratio. This frees up liquidity and is targeted at smaller companies. We expect the PBoC to ease policy further to offset the effects of the US-China trade war.”

“The monetary policy easing has weakened the CNY significantly as it has happened alongside higher policy rates from the Fed in the US. We look for further weakening of the CNY towards 7.2 in 12M, as we expect the two countries’ monetary policies to continue to move in opposite directions and due to continued uncertainty over the trade war.”