Chinese Yuan: Recovery contrasts with domestic imbalances – Societe Generale
Societe Generale highlights that the Chinese Yuan (CNY) is trading at its strongest level since 2022, despite IMF estimates suggesting it remains significantly undervalued.
The Chinese yuan has demonstrated notable strength, trading at its highest level since 2022, according to Societe Generale. Despite IMF projections suggesting a significant undervaluation, spanning 17.3% to 25.3% relative to the US dollar, the central bank attributes this to domestic structural issues and a K-shaped recovery. Factors contributing to this recovery include robust export performance and mixed inflation dynamics.
Headline inflation rose to 0.9% in September, while core inflation remained steady at 1.0%. However, factory price inflation accelerated to 5.5% in September, highlighting challenges in cost transmission for producers. Notably, China's exports surged 29.6% year-over-year, pushing the trade surplus to $133.53 billion in September.
Societe Generale's economists are confident in China's ability to achieve its 2026 growth objective of 4.5-5.0% with some easing. Upcoming key economic data, such as the 3Q GDP and September activity figures, are scheduled for release next week. PBoC Governor Pan Gongsheng and NFRA Head Ding Xiangqun will deliver important speeches at the Financial Street Forum starting October 19th.
Market participants will be closely watching these data releases and policy statements from the PBoC and NFRA in the coming weeks.
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