CNY devaluation unlikely, but stay long USD/CNY

China government is easing monetary and fiscal policy to support economic growth, which remains a concern, to help curb deflation risks while refraining from raising USDCNY fixings.

Despite weak external demand, the government has made it clear that it does not intend to weaken the currency to boost growth. 

"For different reasons, the CNY is expected to drift lower but hold reasonably well against the USD. Another 50bp of cuts is anticipated together with two more RRR cuts by Q3", says Societe Generale.

China's preference for a stable USD/CNY exchange rate, despite a sharp appreciation of its REER, suggests that the authorities do not want to risk being accused of currency manipulation or criticized for having an undervalued exchange rate, which could pose challenges to SDR entry