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Apr 17 - 12:55 AM

ING: Potential CNY Depreciation Bolsters Bullish Outlook for USD

By eFXdata  —  Apr 16 - 04:30 PM


ING discusses the implications of a potentially weaker Chinese renminbi (CNY) on the broader currency markets, noting that recent movements suggest an increased likelihood of PBoC flexibility in currency management. This change could further strengthen the already bullish tone for the USD, impacting various global currencies, especially those in Asia and other emerging markets.

Key Points:

  • Impact on Asian Currencies: The strength of the USD is already affecting Asian currencies, with notable declines in the Indonesian rupiah, Korean won, and Japanese yen. The stability of the renminbi up to now has inadvertently caused its trade-weighted value to surge, highlighting its relative strength amid regional currency weakness.

  • Renminbi Stability and Market Sensitivity: Despite low inflation and weak export growth in China, the renminbi has remained relatively stable. However, recent PBoC actions, including fixings that hint at a willingness to allow some depreciation, have heightened market sensitivity to daily USD/CNY settings.

  • March 22 PBoC Experiment: An experiment with a fixing above 7.10 led to significant losses for both onshore and offshore renminbi, suggesting market apprehension towards renminbi depreciation. The recent fixing at 7.1028 indicates a possible shift towards allowing greater currency flexibility.

  • Global Dollar Impact: A strategy by the PBoC to permit a weaker renminbi could enhance the USD's strength globally, particularly affecting currencies with high correlations to the CNH, such as the Australian and New Zealand dollars in the G10, and the South African rand in emerging markets.


The possibility of the PBoC easing its stance on the renminbi's strength poses significant implications for currency markets worldwide, potentially reinforcing a bullish outlook for the USD. This scenario warrants close monitoring by investors, as shifts in China’s currency policy could influence global trade and currency valuations extensively, affecting both emerging markets and major economies.

ING Research/Market Commentary


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