Euro's outlook and US-China headlines remain the key drivers for the RMB – HSBC

The RMB has not reacted too negatively towards China’s A-share correction probably due to better-than-expected economic data, attractive Chinese bond yields and a resilient EUR, economists at HSBC reports.

Key quotes

“The RMB has not reacted too negatively towards the equity market correction, probably due to the following reasons: 1. China’s 2Q GDP growth swung up to 3.2% on a year-on-year basis (from a 6.8% contraction in 1Q). 2. Foreigners may increase their China bond investments, given the attractive yields, now that the drain of fund flows to equities is easing. 3. The EUR has held up well ahead of the 17-18 July EU summit. 4. The China Foreign Exchange Trade System (CFETS) RMB index (which reflects the RMB exchange rate against 24 currencies) is currently still below 93, which, we believe, cannot be considered rich.”

“We think that the key drivers for the RMB include the EUR’s outlook and US-China headlines. We will also monitor the credit data for the impact of the recent rise in interest rates, as this will be critical for the 2H growth outlook.”