CNY to weaken but not as quickly as initially expected

The authorities' resistance to CNY depreciation is inconsistent with the country's weak economic outlook, monetary easing bias and capital account liberalization plan. China is trying to manage the impossible trinity. Keeping the currency stable will require the government to tighten capital controls, which would be in conflict with the capital account liberalization agenda. 

It is acknowledged that the strong resolve of the authorities to deter speculation and to maintain currency stability in the near term. But continue to see the risk that a sudden depreciation occurring at some point in the future could limit potential REER appreciation, although the timing of such a move is extremely hard to predict. 

"We now expect USDCNY to rise to 6.80 by mid-2016 rather than by end-2015, and recommend holding long USDCNH forwards as a hedge against policy surprises", says Barclays.