CNY: The unbearable heaviness - Nomura

Bilal Hafeez, Research Analyst at Nomura, suggests that the close to 3% decline in CNY against USD seen over the past few weeks has coincided with a weak batch of data, likely due to policy induced deleveraging and further accelerated with trade war threats from the US administration.

Key Quotes

“Aside from retaliating with like-for-like tariffs, Chinese policymakers could well be intentionally weakening their currency as another form of retaliation – a weaker CNY would help Chinese exports and hurt US imports. A weaker currency also has the advantage of helping stabilise the domestic economy.”

“But such a rapid decline in CNY does come with costs – most notably in increasing risk aversion towards Chinese markets. Already, we have seen Chinese stocks tumble by close to 10% since the start of the CNY decline.”