Despite China’s economic growth naturally slowing as it transitions towards a more consumption-led growth path, the decision by authorities to reduce stimulus measures suggests the pace of growth in the near term isn’t a concern. In this light, we anticipate the yuan to continue rallying, albeit at a slower pace than before, over the short run as the broad dollar continues to weaken. However, over the 6-to-12-month horizon, we expect USDCNY to reach an inflection point in which the yuan starts to weaken again due to narrowing yield differentials.
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Author: Simon Harvey, Senior FX Market Analyst
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