Still only limited potential for the CNY – Commerzbank
|After the Chinese renminbi almost slipped below 7 against the US dollar in the wake of the stimulus announcements at the end of September, the euphoria subsided considerably in October. USD/CNY recently traded at around 7.12 (CNY weaker), almost 1.5% above its low, Commerzbank’s FX analysts Volkmar Baur notes.
Interest rate differential to limit CNY's potential
“The main reason for this was certainly the lack of details on the support packages, which makes it difficult to assess how sustainably the manifold problems in the Chinese economy can be solved. However, the data published for September also show why we should be cautious about becoming overly optimistic about the CNY's appreciation.”
“At 0.4%, the annual rate of inflation was again very low in September - even though the volatile food component rose by 3.3%. On the one hand, petrol prices counteracted the rise in food prices. At -7.6%, they once again fell significantly. However, the core rate was also very low year-on-year at just 0.1%. In fact, it was lower than ever before, apart from the Great Financial Crisis and the pandemic. And this is unlikely to change in the near future. At -2.8%, producer prices also fell significantly faster than in the previous month.”
“Sooner or later, falling real estate prices should also have an impact on rental price trends. And as these are estimated to make up around 20% of the inflation index, the core rate is likely to remain low for some time to come. We are therefore still a long way from a turn in the interest rate cycle in China. The interest rate differential to the US should therefore remain negative for the foreseeable future and limit the CNY's potential.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.