USD/RMB higher, but RMB a regional outperformer

The longer PBC maintains a grip on CNY through stable fixings that do not reflect the macro-fundamentals and/or maintaining the current +/-2% daily onshore spot trading band, the higher the probability growth will slow faster than expected.

"By the end of 2015, still the risks are seen skewed toward another 25bps rate cut in the benchmark 1-year lending rate to 4.60%, 200bps in RRR cuts (for major banks) to 16.5%, and increasing demands for a CNY band widening to encourage further currency depreciation amid disinflationary pressure", says RBC capital markets. 

Moreover, recent government intervention in the stock markets and control over RMB represent a backward step in the reform process, risking further delay in the entry of mainland Chinese stocks into MSCI's global benchmark indices while limited evidence of liberalising the exchange rate could also delay the addition of RMB in the IMF's SDR basket later this year. 

"USD/CNY is targetted at 6.70 by Q1-2016, but this is contingent on PBC allowing the exchange rate to respond to slowing growth momentum and increasing capital outflows", added RBC capital markets.