QuickScan: The Direction of the Renminbi

In this QuickScan, we discuss why we think China is unlikely to substantially weaken its currency further. While there have been significant devaluations in the past, we believe the current environment is different from 2015/16 and 2018/19, when China resorted to weakening the RMB to boost exports and offset some of the impact of the trade war with the US.

While a substantial devaluation of the RMB may make sense in the context of further potential tariffs on Chinese exports, we currently see little indication that such a move is imminent. In 2015 and 2018, when China sharply devalued the RMB, the currency traded at strong levels relative to the USD. This is in marked contrast to the current environment, where the RMB has already weakened substantially against the greenback, largely driven by wide interest rate differentials, although it has been strengthening against a broader basket of currencies.