USD/CNY: Medium-term depreciation outlook remains intact – Nomura

Analysts at Nomura note that since November, the strong USD environment triggered by the unexpected US election outcome, higher interest rate forecasts by the FOMC from 2017 onwards and the January reset of the annual USD50K purchase quota for local Chinese residents may have increased concerns over a renewed surge in capital outflows from China.

Key Quotes

“We believe there was a notable build up in short CNH positions into the end of 2016 that resulted in various actions to reduce depreciation expectations, including increased scrutiny over the utilisation of the USD50K cap, reports on various potential foreign currency repatriation measures (Bloomberg), CNH liquidity tightening and keeping the USD/CNY fixing rate relatively stable. Although these measures have been successful in reducing the recent build-up of short RMB positions, we believe these measures will likely be sustained only in the short term and our medium-term RMB depreciation outlook remains intact.”