Yuan faces continued depreciation pressure amid China’s economic slowdown, seen range-bound ahead of Trump-Xi Summit, says Scotiabank

The Chinese yuan is facing continued depreciation pressure amid country’s economic slowdown, but is expected to range trade prior to the Summit and to rally moderately before long as the world’s two largest economies will likely reach a framework agreement, according to the latest research report from Scotiabank.

Chinese regulators are increasingly concerned about intensified downward pressure on the nation’s economy. Falling Baltic Dry Index, official manufacturing PMI and PPI inflation suggest China’s economy losing steam.

In addition, China’s outstanding total social financing (TSF) and M2 money supply increased at a slower pace in October, casting a shadow on the country’s growth outlook.

The US stock rout will raise the chance to deescalate US-China trade tensions at the upcoming Trump-Xi Summit set for December 1, although the USTR Office on Tuesday released a detailed 53-page report that accused China of continuing a state-backed campaign of intellectual property and technology theft, the report added.

Top White House economic adviser Larry Kudlow said in an interview with Fox Business Network Tuesday that President Donald Trump is trying to "inject a note of optimism" into trade talks with China ahead of the planned meeting with Chinese President Xi Jinping.

Meanwhile, Kudlow added that Trump "believes that China would like to have a deal" and "very detailed communications" are taking place at all levels of government.

"Separately, it would boost high-yielding and high-beta currencies in the region should the Fed ease rate hikes in the year of 2019. We are awaiting the December "dot plot" that could provide us good clues to the Fed’s rate tightening path," Scotiabank commented.