- PBOC will watch carefully on capital outflow dynamics in the near-term
- Doesn’t want to upset traders too much on the matter
- If trade tensions continue to escalate, can expect USD/CNY to rise to 7.50
- PBOC may tighten capital controls if outflows start to pick up
- However, doesn’t expect pace of capital outflows to be as dramatic as in the past
- Markets are more prepared to deal with a weaker yuan now
This continues to feed into the narrative as mentioned at the start of the week here and here, in that we should expect a weaker yuan over time given ongoing trade tensions but certainly not any rapid depreciation in the currency.
All this means that we’re experiencing a gradual shift in markets and one that other countries and central banks have to take note of. If anything else, we’re entering a new phase not only in the US-China trade rhetoric but also towards a global currency war of sorts.