CNY to remain under depreciation pressure in coming months

The Chinese yuan is likely to remain under pressure in the coming months. Market participants believe the People’s Bank of China prioritizes a relatively stable yuan before the G-20 Hangzhou Summit, said Scotiabank in a research note. If the U.S. non-farm payrolls print due today come in high and surpass market expectations, the USD would extend its rally and incite fresh market fears over the yuan depreciation after the G-20 Summit concludes on 5 September.

It will urge dollar/yuan spot and fixing to break above 6.70 psychological resistance level, noted Scotiabank. But it does not signify that 6.70 level would serve as a floor to the fixing in the future. The fixing is still expected to fall below 6.70 along with broad market movements later.

Meanwhile, on the other hand, if the payrolls data for August come in lower than market expectations, the US dollar would definitely weaken against regional currencies including the CNY on 5 September as what happened in June, stated Scotiabank. It would then alleviate market concerns over the yuan’s depreciation for some time.

“CFETS RMB index will then decline on account of potential underperformance of the yuan in this scenario”, added Scotiabank.