TD Securities: Breaking Lower Despite Pushback

TD Securities “now expect USD/CNY to break CNY7.00 over the coming weeks as pressure on the economy builds, ending the year around CNY7.10 (previously CNY6.80).”

• “The growth outlook will undermine support for the currency. Weakening activity indicators and limited stimulus led us to downgrade our GDP forecast to 2.9% this year.”
• “We think China will want to allow for some trade-weighted depreciation of the CNY CFETS index to maintain exports competitiveness.”
• “We think China's broad basic balance position will also weaken further in the months ahead, reducing the underlying support for the CNY.”
• “There are growing signs including from recent CNY fixings that the PBoC is uncomfortable with the pace of CNY depreciation.”
• “Pushback from PBoC is likely aimed at sending a signal to the market but in itself it is unlikely to stem CNY weakness.”
• “Even if the USD turns lower we think China will limit the pace of any CNY appreciation, thus resulting in CNY depreciation on a trade-weighted basis.”