HALISTER1: Yuan Seen Weakening If Pace Doesn’t Destabilize Markets: CS

Yuan Seen Weakening If Pace Doesn’t Destabilize Markets: CS

(Bloomberg) -- Chinese govt will be happy to engineer some depreciation of CNY REER, even if USD/CNY rises, providing it does not destabilize markets, Credit Suisse analysts, led by Ray Farris, write in note today.
  • CS now sees USD/CNY at 6.59 in 3-months vs 6.43 previously; at 6.75 in 12-months vs 6.65 prior
  • PBOC seen continuing to test market’s tolerance for yuan weakness vs dollar
    • Yet, “everyone we met in Beijing last week argued that another devaluation was unlikely,” says Farris
    • Recent policy statement by an “authoritative figure” in the Peoples’ Daily on May 9 clearly argued exchange rate was not a tool for reflation of economy
  • China’s government seems highly focused on maintaining stability in the economy and financial markets
  • If higher USD/CNY daily parity settings were to produce an onshore run on yuan, govt is expected to respond by pausing or reversing the move
  • USD/CNY up 0.07% to 6.5442
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Ray Farris (Credit Suisse Group AG)

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