HSBC with a restrained view for RMB, looking for its appreciation to slow and prompt some range trading, not a sharp reversal.
- We believe the recent comments and countercyclical measures out of China … suggest that, while there is no line in the sand, there is still a policy preference for basic stability of the RMB exchange rate.
- We do not believe the recent downward momentum is the beginning of a long-term RMB appreciation trend. Cyclical indicators are pointing to a likely slowdown of GDP growth and smaller yield advantage for China in 2H21. We expect these cyclical developments to see net FX flows to China moderating in 2H21.
- Broad USD weakness may be tested, if the Federal Reserve’s tapering debate picks up later in the year and some of the generous USD liquidity conditions could subside later this year. Our economists expect an official tapering announcement at the end of the year and implementation in 2022.
- We think that China’s broad FX framework has not changed, namely two-way capital account liberalisation is maintained with the aim of achieving a balanced flow. Our base case sees USD/RMB exhibiting more two-way movement and then rise slightly later this year, when China’s outbound investment liberalisation accelerates, likely in 2H21.
(I bolded those Fed comments from HSBC that were part of the yuan note).
Weekly offshore yuan (USD/CNH) candles showing the appreciation trend for yuan since the middle of last year.