CNY likely to remain under pressure until there is a visible improvement in the economy – Commerzbank

The Communist Party’s July Politburo meeting was held on Monday. Economists at Commerzbank analyze CNY outlook.

Absence of aggressive stimulus could prolong CNY’s weakness

As we expected, the meeting did not announce any large-scale stimulus, likely due to the heightened fiscal stress. The Politburo statement also said to maintain the Yuan exchange rates stable at ‘reasonable equilibrium levels’.

Since late June, the PBoC has continued to set the daily fixing below market estimates to manage CNY expectations and volatility i.e. the mid-point of USD/CNY’s trading band below the implied level from the fixing formula. Nevertheless, the markets could view the absence of aggressive stimulus as a disappointment that could prolong CNY’s weakness. 

CNY will likely remain under pressure until there is a visible improvement in the economy.