CNY likely to trade around 6.70 against US dollar by end-2016

The Chinese renminbi has dropped modestly against the US dollar; however, it has yet to push above its July multiyear low of 6.70. A comparatively stable trade-weighted exchange rate has alleviated pressure on the People’s Bank of China to adjust its fixing against the US dollar much lower, noted Commerzbank in a research note.

Chinese central bank’s policy makers continue to hint at their desire to keep a stable exchange rate regime. Minimizing exchange rate volatility is possibly a key goal ahead of the Chinese renminbi’s inclusion into the IMF SDR on 01 October.

Firmer domestic property and equity market prices has made its job easier as the stronger domestic property and equity market has assisted in stemming portfolio outflows that weighed strongly on the exchange rate earlier in 2016.

Similarly, recent PMI data has also indicated towards stabilization in both the manufacturing and service sector activity, easing pressure for a sharp devaluation to boost growth. Given this, the Chinese renminbi is expected to depreciate just moderately in the forecast period as the People’s Bank of China adjusts to broad US dollar strength. The currency is expected to trade at around 6.70 by the end of 2016 and at around 7 by the end of 2017, according to Commerzbank.