There seems to be little confidence that Chinese policymakers are prepared to jolt the economy into action. The turn in the broad dollar cycle may help cement a top in USD/CNY at 7.25/30, but the case for a markedly lower USD/CNY is hard to make right now. A better equity environment and improved terms of trade story may see the Korean won outperform
China’s weak economic re-opening continues to weigh on markets and the CNY, though hopes for stimulus measures have provided sporadic respite, along with People’s Bank of China fixing’s that indicate that investors should not view the CNY as a one-way bet on weakness.
We are not hopeful of a meaningful package of stimulus measures, and with the economy flirting now with disinflation, there are growing signs that the weakness is spreading.
Despite some recent USD weakness, we favour a move towards the 7.30 level over the coming quarter.
