USD-RMB could continue to track the broader USD passively - HSBC

Research Team at HSBC, suggests that in the near-term, USD-RMB could continue to track the broader USD passively and the RMB index should be relatively stable as global markets react in a risk-off fashion following Trump’s victory in the US presidential election.

Key Quotes

“However, this could be short-lived if Trump indicates that he would go through with his 45% tariff proposal for imports from China. Markets will now be hypersensitive to what Trump says about China and the RMB.”

“We have raised our USD-RMB forecasts to 6.90 for end-2016 (from 6.80) and 7.20 for  end-2017 (from 6.90) to factor in this increased uncertainty on China's growth and FX policy posed by the new US administration. The faster pace of RMB depreciation is also because of HSBC's revised projection of a broadly stronger USD across the board, notably versus the JPY, CAD and SGD – which are components of the CFETS RMB basket.”

“To be sure, we still need more clarity on Trump’s policies and China’s potential response. In our view, it is quite possible that we could avoid a ‘lose-lose’ situation – for example, a major trade conflict or a ‘currency war’ – for both the US and China. Otherwise, the risk is for substantial volatility in global markets and additional depreciation pressures on the RMB.”