Challenging Times Ahead: Negative Outlook for the CNY

There will doubtless be more support measures coming in the days and weeks ahead. And in anticipation of these, markets may rally. But the underlying story on the economy is extremely disappointing right now, and that suggests that apart from periods of temporary stimulus-generated relief, we should anticipate markets remaining soft in net terms.
The CNY gapped higher ahead of the data today, and there is nothing in the numbers that suggests that this gap should be closed. Our recently revised CNY forecasts already look out of date. 7.20 could be reached in days. And though the authorities will be keen not to see the currency weaken in an uncontrolled fashion, they will surely regard a weaker CNY as one of the policy tools they will need to lean on to help the economy out of its current state of weakness.
We will be returning to those CNY forecasts shortly. The profile will undoubtedly be raised further, and the turn probably pushed out too.