Goldman Sachs Sees USD/CNY Pushing Higher, But At A Slower Pace

The US bank still sees the USD/CNY outlook skewed higher, but the pace of upside moves should be slower than before, see below for more details.

• "Slower depreciation. Chinese equities, especially real estate stocks, have bounced sharply over the past week as expectations around policy easing have increased following the July Politburo meeting. However, the FX reaction has been relatively more muted. While an improvement in sentiment towards the growth outlook would support the exchange rate, we expect other factors to continue to weigh on the Yuan. Namely, the unfavorable interest rate spread between China and the US, which may widen further as the PBOC is expected to cut interest rate to facilitate economic growth. Plus, the uncertainty surrounding the property market outlook would also add renewed depreciation pressure should property related indicators deteriorate further. Set against this, the authorities have sent clear signals against fast depreciation of the currency in the past couple of weeks and the July Politburo meeting also reiterated the importance of a broadly stable exchange rate. While we think policymakers will continue to lean against sharp one-way depreciation, the macroeconomic data mix out of China still points to upside risks to USD/CNY, albeit at a slower pace than before."