Deutsche Bank says the yuan is less likely to keep depreciating

  • Assesses the chance of a further 10% fall in the yuan against the USD at only 15%
  • DB were at 20%

DB's note cites:

1. Tail risk of large appreciation of the US dollar against Euro and the yen may have declined recently

  • Market is pricing lower chance of Fed rate hikes
  • The PBOC's shifting toward a basket based yuan valuation weakens the case for large devaluation against the US dollar

2. Political pressure may be building up in the global community against a large yuan depreciation

3. Recent global financial turmoil makes a large devaluation risky for both the Chinese & global economy

  • Devaluation could lead to more panic and capital outflows from China

4. The PBOC imposing RRR on interbank deposits related to offshore yuan shows the bank is concerned about potential systemic risks