PBoC’s devaluation mechanisms likely to fail rebalance GDP and trade balance

The central bank's Chinese Yuan Reminbi devaluation saw cumulative weakness of 4.6% so far. We think this pace of depreciation is unsustainable-China's policy priority is to rebalance GDP growth from investment and exports and toward consumption; marked devaluation in RMB would be inconsistent with that goal.

Additional restructuring is essential to secure SDR status and renewed widening in CNY/CNH is concerning.

We maintain our USD/CNY profile and continue to forecast 6.56 by end-2015, 6.70 by Q1 2016, and 6.95 by end-2016. Those targets already incorporated some action from the PBoC to correct the RMB's overvaluation.

The Chinese central bank (PBoC) upholds its drive to stabilize Yuan days after its currency suffered its most turbulent week in years. During Monday morning's daily fix, the PBOC moved its currency only 0.1% from its midpoint against the dollar, as USD/CNY rose modestly 0.06% to 6.3949. By comparison, the Chinese central bank moved the yuan nearly 2% below the midpoint of the currency pair on two consecutive days last week, as the remnibi fell to its lowest level in four years.