China’s renminbi will likely remain weak for the rest of 2022

After strengthening for more than one-and-a-half years and having demonstrated resilience to global market volatility, China’s renminbi (CNY) weakened sharply in April and May. We forecast the renminbi to weaken close to CNY7/US$ in H2 (from CNY6.65-6.79 in May) before a rebound in 2023, assuming China’s economy will be on track to recover and moves beyond its zero-Covid policy next year.

What you will learn:

• Global investors’ appetite for Chinese assets will remain low as China’s outlook is highly uncertain due to the zero-Covid policy. Monetary policy divergence with the US will also weigh on the renminbi outlook.
• The possible easing of some US tariffs on Chinese products may provide optimism, but this will unlikely cause a major bounce back in the renminbi. Meanwhile, the risk of Chinese stocks forced to delist from US exchanges is looming, dampening the sentiment around Chinese assets.
• Despite steep renminbi depreciation in recent months, the People’s Bank of China has refrained from direct intervention. We believe the central bank will use other policy tools to stabilize the exchange rates when necessary, especially if the renminbi gets close to the 7 mark against the US$, which is widely seen as a key psychological level that could trigger significant outflows.