Chinese yuan likely to depreciate slightly through 2017, says Scotiabank

The Chinese yuan is expected to decline just slightly through the course of this year as the central bank policymakers prioritize stability ahead of a key leadership meeting during the end of the year, noted Scotiabank in a research report. The People’s Bank of China is expected to continue intervening in the foreign exchange market to underpin the value of the Chinese yuan.

China’s foreign reserves have contracted in the last two-and-a-half years because of capital outflow. But they have stabilized recently around USD 3 trillion. According to Scotiabank, the USD/CNY pair is expected to trade at around 7.10 by the end of 2017.

Meanwhile, China’s sovereign credit rating might be downgraded in the quarters ahead. Standard and Poor’s affirmed the nation’s “AA-” rating with a “negative” outlook in January 2017. S&P has underlined the economy’s dependence on credit-fuelled growth that might weaken its dependence to shocks and lower the government’s policy options.

Sentiment toward China is expected to be volatile in the months ahead, affected by capital outflows, corporate debt overhang, housing market risks, authorities’ interventionist policies and uneven structural reform progress, added Scotiabank.