Chinese Yuan NDF Now Pricing In Depreciation Of The Currency

For more than once, I have expressed my contentious view that in the face of global slowdown, Chinese policymakers may want to depreciate its currency rather than appreciate. 

Now we have the market pricing in such possibility after the weak HSBC manufacturing PMI flash estimate and the on-going market jitters after the disappointments of Operation Twist and concerns on Europe.

Michael McDonough at Bloomberg Brief points us to the following chart, which suggests that the non-deliverable forward contract of Chinese Yuan is currently pricing in a depreciation of the currency.

I don’t expect Chinese Yuan, however, to depreciate at this point.  But I think if the macro environment continues to deteriorate, policymakers will first stop the appreciation of RMB against the US dollar, and then they will see.

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About Zarathustra

Zarathustra: Founder and Managing Editor of Also sprach Analyst. Once an analyst, now an investor and entrepreneur. Based in Hong Kong, but Londoner at heart.