Despite long-term range, an upside trading opportunity is eyed
We question if the near 30% appreciation of the Chinese Yuan versus the US Dollar since 2005 might partially reverse over the course of the year. Chinese growth moderation continues as the misallocation of capital that led to burgeoning residential/commercial real estate markets continues to weigh on GDP growth. Also bad debt in the shadow banking sector weighs on the ability of the consumer to generate domestic demand growth. Anticipation is that the Chinese authorities will not attempt to reignite their economy, instead choosing to accept more moderate growth in return for the potential of rebalancing their economy and correcting the aforementioned misallocation of capital. Could downside growth surprises lead to a weakening CNY? This may also have implications for the Hong Kong Dollar, which could return to the top of its large trading range between 7.7500 and 7.8100.
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MIG Bank