19 May 2015
USD/RMB forecasts at 6.22 for end-2Q15 - UOB
FXStreet (Guatemala) - Lee Sue Ann, analysts at UOB Group explained conditions surrounding the Chinese currencies.
Key Quotes:
"The RMB continued to hold steady as expected, ending the week unchanged at 6.2061/USD last Friday, while the offshore CNH was marginally firmer at 6.2028/USD, but otherwise both currencies have been hovering within a range of 6.19-6.22 against USD since mid-March, when the Chinese currency recovered from lowest levels seen since Sep/Oct 2012 in response to Chinese authorities’ view that the currency has reached “equilibrium” value."
"We continue to expect the unit to stay relatively stable, as China works towards being admitted to IMF’s Special Drawing Rights (SDR) basket of currencies. This means that IMF’s next country review on China – which is typically held annually – will be crucial especially its staff’s assessment on RMB valuation."
"In the 2014 Article IV report, IMF staff concluded that the RMB was undervalued by 5-10% “relative to a level consistent with fundamentals and desired policies”. However, this year’s assessment could be favourable given that IMF’s chief Christine Lagarde had indicated that the currency should be included in the SDR basket."
"For now, we are maintaining our USD/RMB exchange rate forecasts intact, at 6.22 for end-2Q15, and at 6.20 for end-2015. While there are no fundamental reasons to support a sharp depreciation or devaluation of the currency, given the size of China's foreign reserves at USD3.7tn, the RMB is likely to move in volatile fashion on a day to day basis as it responds to both domestic and global market conditions, and we are still expecting a further widening of the RMB trading band to 3% from 2% sometime this year. For this week, market’s focus will be on Thursday morning, with China’s prelim HSBC manufacturing PMI index for May seen edging up slightly to 49.3 from 48.9 in April."
Key Quotes:
"The RMB continued to hold steady as expected, ending the week unchanged at 6.2061/USD last Friday, while the offshore CNH was marginally firmer at 6.2028/USD, but otherwise both currencies have been hovering within a range of 6.19-6.22 against USD since mid-March, when the Chinese currency recovered from lowest levels seen since Sep/Oct 2012 in response to Chinese authorities’ view that the currency has reached “equilibrium” value."
"We continue to expect the unit to stay relatively stable, as China works towards being admitted to IMF’s Special Drawing Rights (SDR) basket of currencies. This means that IMF’s next country review on China – which is typically held annually – will be crucial especially its staff’s assessment on RMB valuation."
"In the 2014 Article IV report, IMF staff concluded that the RMB was undervalued by 5-10% “relative to a level consistent with fundamentals and desired policies”. However, this year’s assessment could be favourable given that IMF’s chief Christine Lagarde had indicated that the currency should be included in the SDR basket."
"For now, we are maintaining our USD/RMB exchange rate forecasts intact, at 6.22 for end-2Q15, and at 6.20 for end-2015. While there are no fundamental reasons to support a sharp depreciation or devaluation of the currency, given the size of China's foreign reserves at USD3.7tn, the RMB is likely to move in volatile fashion on a day to day basis as it responds to both domestic and global market conditions, and we are still expecting a further widening of the RMB trading band to 3% from 2% sometime this year. For this week, market’s focus will be on Thursday morning, with China’s prelim HSBC manufacturing PMI index for May seen edging up slightly to 49.3 from 48.9 in April."