China: Has The Yuan’s Downtrend Ended? – RBS

The Research Team at the Royal Bank of Scotland (RBS), in its latest note, expressed their views on the Chinese yuan.

Key Quotes:

 “Capital outflows and currency weakness have become less mutually reinforcing”

“The yuan thus appears to be depreciating in a more orderly fashion and seems less of a risk trigger for sentiment on China”

“The currency is also being stabilized in the near term by firmer interventions by the authorities”

“But it’s too early to call an end to the yuan’s underlying downtrend’

“Both cyclical (diverging monetary cycles) and structural (demand for foreign assets) downward pressures remain intact”

“Nor has China’s systematic risk been mitigated, as the authorities’ imbalanced policy response so far compounds financial risks”

‘We thus warn against over-extrapolating the yuan’s stability for this quarter, as the yuan will continue a stop-and-go depreciation”

“We see another 8-10% adjustment (CFETS index 88, USD/CNY 7.20-7.30) justified by fundamentals and likely overshooting”