CNY to continue the gradual trend of weakening - Danske Bank

Allan von Mehren, Chief Analyst at Danske Bank is looking for CNY to continue the gradual trend of weakening as China continues to face challenges with (a) rising financial risks, (b) overcapacity and (c) too much dependence on investments.

Key Quotes

“We expect this to put 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 the EUR, we still expect the CNY to depreciate by around 10% on a12Mhorizon.”

“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. After hitting zero again, it has then moved into negative territory recently. We expect it to fluctuate around zero in the long run.”