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Slower Chinese growth to negatively impact RMB and Asian currencies – Nomura

FXStreet (Delhi) – Research Team at Nomura, suggest that the implications of a further slowdown in Chinese growth are negative for the RMB and Asian FX as it will add to the underperformance of these currencies.

Key Quotes

“Nomura Economics lowered its forecast for China’s 2016 GDP growth to 5.8% from 6.7% previously. The rationale includes less effective monetary and fiscal policy easing measures and increasing structural headwinds from overcapacity, increasing domestic leverage, slowing productivity growth, and a declining labour force.”

“Despite Nomura Economics’ view that this is not a China “hard landing”, we believe this will add to further concerns over: 1) capital flight, 2) the sustainability of the government’s multi-market intervention, and 3) the risk of more aggressive monetary policy easing, and therefore US-China rate policy divergence.”

“As such, we see some risk of RMB depreciation pressure over the near-to-medium term and forecast USD/CNY to end 2015 at 6.50 and at 6.75 by the end of Q4 2016. For Asia FX, we expect countries with greater economic/financial linkages with China (namely South Korea, Taiwan, Singapore and Malaysia) to see further local FX underperformance (vs. USD) compared with India and Philippines.”

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