USD/CNY: Yuan to stabilize as PBoC's resistance to currency appreciation grows – TDS

FXStreet Insights Team FXStreet

Beijing reported that the Manufacturing PMI came out at 51 points in May, marginally below estimates. While today's data may have little impact on the currency, CNY has strengthened lately. Economists at TD Securities expect official resistance to CNY appreciation pressures to grow. That said, they don't expect a return to a depreciation path for the currency but rather stability ahead.

All eyes on CNY

“China's NBS manufacturing PMI for May slipped marginally to 51.0 from 51.1 previously (TD 51.1, cons 51.1) while the non-manufacturing PMI for May increased to 55.2 from 54.9 previously.”

“While CNY is likely to remain firm amid strengthening bond and equity inflow, we expect official resistance to appreciation pressures to grow. Officials have already walked back from comments that noted that a firmer CNY will help dampen commodity price related inflation pressures.”

“Yesterday, in an interview with the official Xinhua news agency Sheng Songcheng, a former PBoC official noted that the currency is ‘overvalued’ and may depreciate in the future. That said, we think China wants to continue to attract foreign bond inflows while not wanting to encourage outflows, implying a stable path for CNY going forward.”

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