Economists at ING have delved into the structural issues confronting China’s economy, shedding light on the USD/CNH outlook. The analysis indicates a growing discourse on the need for further interest rate cuts by the People’s Bank of China (PBoC) to address challenges, particularly within the property sector.
Despite efforts by policymakers to bolster local equity markets through measures like restrictions on short-selling, there is a recognition that these actions have not yielded the desired impact. The property sector, in particular, presents complex challenges that lack quick-fix solutions.
Amidst these considerations, there has been an escalating discussion about the necessity for the PBoC to implement additional interest rate cuts. The evolving situation reflects a cautious sentiment as the effectiveness of existing measures comes under scrutiny.
While local policymakers may find solace in the USD/CNH’s shift away from the 7.3000/7.3500 range, which signals a departure from a ‘sell-China’ mindset, there is a strategic reluctance for the Renminbi to appreciate excessively. This cautious approach implies a potential stabilization of USD/CNH around the 7.2000 mark. Consequently, the analysis suggests that Asian FX markets are likely to maintain a sluggish pace in the early months of 2024.
As the dynamics of China’s economy and its impact on the currency market continue to unfold, market participants remain vigilant for further developments that could shape the trajectory of the USD/CNH and Asian FX landscape in the coming months.
