Chinese Yuan: Export dependence limits upside against US Dollar - Commerzbank

Commerzbank’s Volkmar Baur notes China’s reported 4.5% year-on-year Q3 growth, despite weak investment and flat real retail sales. He argues Beijing appears broadly satisfied and unlikely to deliver major new stimulus. The CNY’s appreciation versus the Dollar has slowed, and with weak domestic demand and a strong Dollar, faster CNY gains look unlikely even though the currency is seen as undervalued.

Growth data and controlled currency gains

"China’s economy reportedly grew by 4.5% year-on-year in the third quarter. Where exactly this growth is supposed to have come from is somewhat unclear. After all, fixed-asset investment fell by 10% year-on-year in Q3, while retail sales, adjusted for consumer price inflation, did not increase either. For the currency outlook, however, this is of secondary importance for now."

"The growth figures suggest that the Chinese government is broadly satisfied with the economic performance and probably sees little need for further major stimulus measures. The CNY’s appreciation against the US dollar has already slowed in recent months, and this more gradual pace is likely to continue."

"In the first five months of the year, the CNY appreciated against the USD by an average of 0.6% per month, despite initially weakening in March in response to the outbreak of the Iran conflict. Since June, however, the average monthly pace of appreciation has slowed to 0.2%."

"Despite the CNY’s modest appreciation this year, we continue to consider the Chinese currency significantly undervalued."

"Given weak domestic demand, the Chinese economy remains reliant on a robust contribution from net exports. And as long as the US dollar remains this strong on a trade-weighted basis, a faster appreciation of the CNY appears unlikely, as this would result in an excessive strengthening of the Chinese currency against other currencies as well."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)