CNY Forecast
Chinese yuan (CNY) is expected to move away from its effective USD peg, resuming appreciation around end-Q2 or early Q3-2010. The precise timing will be a political decision, driven by two key economic variables: (1) the resumption of double-digit export growth and (2) the return of inflation as a potential concern. China is in a strong position to resist international pressure to strengthen the CNY given that the CNY real effective exchange rate (REER) is 15.6% stronger than in July 2005 (IMF REER), and that the US is increasingly dependent on China to finance its widening fiscal deficit.
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