Still only limited potential for the CNY - ING

After the Chinese renminbi almost slipped below 7 against the US dollar in the wake of the stimulus announcements at the end of September, the euphoria subsided considerably in October. USD/CNY recently traded at around 7.12 (CNY weaker), almost 1.5% above its low, Commerzbank's FX analysts Volkmar Baur notes.

Interest rate differential to limit CNY's potential

"The main reason for this was certainly the lack of details on the support packages, which makes it difficult to assess how sustainably the manifold problems in the Chinese economy can be solved. However, the data published for September also show why we should be cautious about becoming overly optimistic about the CNY's appreciation."

"At 0.4%, the annual rate of inflation was again very low in September - even though the volatile food component rose by 3.3%. On the one hand, petrol prices counteracted the rise in food prices. At -7.6%, they once again fell significantly. However, the core rate was also very low year-on-year at just 0.1%. In fact, it was lower than ever before, apart from the Great Financial Crisis and the pandemic. And this is unlikely to change in the near future. At -2.8%, producer prices also fell significantly faster than in the previous month."

"Sooner or later, falling real estate prices should also have an impact on rental price trends. And as these are estimated to make up around 20% of the inflation index, the core rate is likely to remain low for some time to come. We are therefore still a long way from a turn in the interest rate cycle in China. The interest rate differential to the US should therefore remain negative for the foreseeable future and limit the CNY's potential."