China’s currency is likely to remain on a downward trend in coming months, as the nation grapples with economic headwinds, according to analysts.
“Among the investors with which we spoke, there is clear recognition that a weaker yuan is good for China itself, so long as the magnitude [of the downward move] is within reason and does not trigger out-sized capital flight,” said Nomura analysts led by Wendy Liu wrote in a note to clients.
Nomura foreign exchange strategist Craig Chan projected the spot onshore yuan rate to peak at 6.70 in December before settling at around 6.60 at the end of the year.
Societe General China economist Wei Yao said Beijing had a benign view towards a further softening in the value of the yuan.
“Ruling out the scenario of the People’s Bank of China giving up the reform altogether, we think that the most likely near-term strategy of Chinese policymakers is to allow more yuan depreciation to limit further appreciation in trade-weighted terms, in a largely controlled manner,” Yao said in a note to clients.
Hong Kong Exchanges and Clearing’s China economist Ba Shusong noted last month that the sudden 2% devaluation of the yuan on August 11 should be seen as correcting anomalies in the mechanism that determines the value of the yuan against a basket of other currencies. He noted that since 2013 the RMB-dollar exchange rate has basically been stable, which means the effective exchange rate of the yuan has risen by nearly 20%.