The renminbi has remained in a downtrend for much of the year, falling to its lowest levels against the dollar since November 2022. The upward adjustment in US interest rate assumptions has coincided with a faltering post-Covid economic rebound to weaken rate differentials and limit the appeal of Chinese assets. With domestic demand remaining stubbornly anemic, markets are convinced policymakers are preparing to roll out a range of measures – including more rate cuts – to support growth in coming months.

Much like our thoughts regarding the Japanese yen, we believe a lot of negativity may now be built into the exchange rate and that there are asymmetric risks going forward. While some further yuan weakness and volatility could unfold in the near-term, we think the medium-term balance of probabilities increasingly favours a recovery in the currency

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