HALISTER1: CHINA GDP PREVIEW: RMB Basket Steady for Now Along With Growth

CHINA GDP PREVIEW: RMB Basket Steady for Now Along With Growth

(Bloomberg) -- CFETS RMB index may have bottomed, with limited downside room if China’s 3Q GDP growth matches or beats expectations, though downtrend could resume given uncertainties over the economy, analysts say.
  • While yuan has steadily weakened vs dollar this month, its performance against currency basket has stabilized; last week rose for first time in a month
    • CFETS RMB Index climbed 0.6% last week to 94.64
    • USD/CNH is up 1.0% month-to-date; USD/CNY up 0.9%
  • 3Q GDP data due 10am local time Oct. 19; median est. of 46 economists in Bloomberg survey is for 6.7% y/y growth, matching 1Q and 2Q
  • RBS (Harrison Hu, Greater China chief economist)
    • Data this week expected to show stable economy in Sept. but downward pressure could mount on recently announced property tightening measures
    • Still uncertainty over China’s growth transition and long-term investment returns; could add pressure to outflows and yuan, driving CFETS index down
    • PBOC will aim to control pace of depreciation to avoid market panic; may keep CFETS index relatively stable when dollar strong vs other currencies
    • When dollar falls vs other currencies, PBOC will allow yuan to depreciate against basket
    • USD/CNY likely 6.8 by year end, 7.2 next year
    • RMB CFETS index to fall to 85-86 in coming year
  • UBS (Donna Kwok, senior China economist)
    • Yuan only modestly overvalued, so no need for aggressive depreciation
    • PBOC may keep yuan steady against basket by allowing USD/CNY to trend higher if USD strengthens vs GBP and JPY
    • USD/CNY likely capped at 6.8 given capital outflow and volatility concerns
  • BBVA (Le Xia, Asia chief economist)
    • If China’s GDP matches ests., yuan index could stabilize
    • Less incentive to guide yuan lower if worries about economic growth ease
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Donna Kwok (UBS Asset Management Japan Ltd)
Harrison Hu (Royal Bank of Scotland Group PLC)
Le Xia (Banco Bilbao Vizcaya Argentaria SA)

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