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The USD/CNY currency pair is expected to reach 6.85 by end of this year and 7.20 by end of 2017. However, the depreciation pressure will likely continue through next year as well, with the CNY anticipated to remain relative stable against a basket of currencies in the weeks ahead.
The People’s Bank of China (PBoC) raised USD/CNY fixing by 104 pips to 6.8796 last Friday amid a broadly strengthening USD. The central bank set the USD/CNY reference rate at 6.8985 on Monday, 0.27 percent weaker than 6.8796 last Friday, injecting CNY185 billion liquidity in reverse repos, including CNY15 billion in 28-day repos and CNY60 billion in 14-day repos.
Further, China’s economy will continue to face headwinds next year, Scotiabank reported. The National Bureau of Statistics (NBS) said Friday that China’s new home prices in the first-tier cities increased by just 0.5 percent in October from a month ago after rising 3.3 percent m/min September. It could be attributed to a recent round of property tightening measures.
"A rule-based and more market-oriented fixing formation mechanism enhances the PBoC’s capability to manage market expectations. In the rest of this year, we expect CFETS RMB Index to stay in a range with a soft support level of 94 to avoid fuelling market fears over competitive currency devaluations. In the event of a broadly strengthening dollar, CFETS RMB Index is more likely to rise as the PBoC will certainly step in to curb over-speculation about the yuan depreciation," Scotiabank commented in its latest research report.
Meanwhile, the Central Economic Work Conference, an annual tone-setting economic meeting attended by top Chinese leaders, will kick off in Beijing in December. The conference that is usually scheduled for 2-4 days will review China's economic progress in 2016, list major tasks for the year of 2017 and conclude with a statement. The leadership will set its annual growth target for next year at the meeting, but that figure won’t be disclosed until the NPC (China’s legislature) convenes in March 2017.
