USD/CNY: Yuan to continue its depreciation given cautious Chinese economy outlook – Natixis

The yuan has witnessed a sharp depreciation recently, moving from 6.36 against USD at the beginning of April to 6.79 on May 12th. The depreciation does not seem curbed by the People’s Bank of China (PBoC) yet, so it will possibly continue, analysts at Natixis report.

PBoC to allow for more exchange rate flexibility

“Down the road, we expect the PBoC to allow for more exchange rate flexibility. At the current juncture, this means more likely depreciation given the cautious outlook of the Chinese economy due to the Covid lockdowns and the general strength of the dollar.”

“In case of unexpected large fluctuations, it is possible other financial institutions could curb it before the PBoC intervenes. Stabilizing foreign exchange market, or more broadly, the financial market is still important to guarantee investor’s sentiment in the Chinese market, especially in light of capital outflows.”