Strategists assume that China's flagging currency will someday fall through an important psychological level that could trigger an even steeper case and undoubtedly launch a new round of criticism from the Trump administration.
"It is a red line because it is psychological and also, because China seemed to verbally defend it before, "said Marc Chandler, chief market strategist at Bannockburn Global Forex, saying the move to 7 is likely, but not until after President Donald Trump and Chinese President Xi Jinping met in November and over
Strategists say that the trade dispute between the US and China is a facsimile is the one who has strengthened the dollar and weakened the yuan. The yuan began to fall sharply in June as trading prices rose. But strategists say there are other factors that have weakened the currency, and many of them are domestic, including the sharp decline in stock prices.
Shanghai shares fell 2.9 percent on Thursday and have fallen 25 percent since inception
Some strategists say China has been trying to prevent the decline in the yuan from disrupting or triggering capital flight. But a number of them say China may now drop the yuan by 7 this year or next year.
"Normally it is considered an important psychological threshold, but now the renminbi is falling from 6.3 to 6.9 Since there are no significant outflows from China, we believe that the PBOC is confident that they will see a further decline under 7 without a destabilizing decline. "said Chang Liu, Chinese economist at Capital Economics
There is evidence that China is trying to support the renminbi, as the yuan is also called. September data from the People's Bank of China shows that the central bank tried to contain losses.
"They sold foreign exchange to support the renminbi … about $ 17 billion reserve, most since the beginning of 2017," Liu said.
The People's Bank of China sets a rate for the yuan every day, allowing it to trade in a bond against the dollar, which is 2 percent on both sides of its mean. That's the onshore currency or CNY. The CNH offshore currency is used by foreign investors and banks and is typically lower than the CNY.
Jonas David, Emerging Market Strategist at UBS Global Wealth Management, said the declining yuan is linked to the weakening of the Chinese economy. "We clearly see a weakening economy, and we see further monetary and fiscal easing," he said.
David said he expects the yuan to reach 7.10 in the next six months and $ 7.30 in the space of a year. "In our view, there is no reason why the devaluation of the Chinese yuan should end at the level of 7. It is a psychological level, but we do believe that the Chinese yuan will continue to weaken," David said.
When the Ministry of Finance issued the Monetary Report on Wednesday, Finance Minister Steven Mnuchin said in a statement that China's lack of transparency and a weakening currency are "major challenges for fairer and more equitable trading" and we will continue to monitor and review China's monetary practices, including on-going Discussions with the People's Bank of China.
Liu said the weaker yuan helped China avoid the worst effects of trade tariffs.
"So far, we believe that the impact of tariffs will more or less be offset by the decline in the renminbi I will see next year see a little more headwind as tariffs go up. The economy is slowing down, but mainly due to domestic factors. Politicians have streamlined their policies from 2016 until the beginning of the year, "he said. Another slowdown in lending had an impact on the economy.
But since May, he said that priorities have shifted and China is now boosting banking and lending by banks
China's Q3 GDP It is expected to decline slightly on Friday, dropping from 6.7 percent to 6.6 percent.
"There is a delay between the start of the policy and the time it takes to get through, "Liu said." We think it will slow down for another nine months. "