Macroeconomic Forecast China

The Chinese yuan's short-term appreciatory trend against the US dollar appears to have come to an end, despite the recent weakness of the dollar. The CNY/US$ exchange rate now stands at CNY6.7740/US$, up from CNY6.8270/US$ since the People's Bank of China announced it would allow more flexibility. We are maintaining our view that the currency will trade back towards CNY6.8270/US$ by end-2010 and remain there until end-2011 as China's monetary authorities are likely to return to a cautious stance as export demand begins to cool.

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