A softer Chinese yuan is expected to help bolster the economy which could partially offset the possible slowdown in domestic demand due to property tightening. However, there exist upside risks to the currency pair against the greenback as well.

As headline growth has stabilized and the overall policy tone turns to 'risk control', it is expected that China’s monetary easing in the coming quarter will be less aggressive than estimated. Against this backdrop, a rate cut before the end of this year is hardly on the table. In the meantime, capital outflows could emerge as Chinese investors are likely to turn to offshore property market for opportunities, Commerzbank reported.

China’s economy grew 6.7 percent y/y in Q3 2016, unchanged from Q2, in line with market expectations. On a seasonally adjusted basis, the economy grew 1.8 percent q/q in Q3, the same as last quarter. For the first three quarters of 2016, China’s economy grew 6.7 percent y/y, within the growth target range at 6.5-7.0 percent.

As external demand remains sluggish, China’s growth is largely supported by domestic demand, especially the property sector. However, the rapid growth in property prices has fuelled concerns of an asset bubble, and the Chinese authorities have again tightened the property policies.

"All said, there exists an upside risk in our USDCNY forecast at 6.65 for end-2016," Commerzbank commented in its latest research report.