Renminbi appreciation is set to continue in the short term. At the current index level around 97 and amid export growth that remains strong, the RMB may still be some way short of the level at which the authorities will be inclined to manage the currency weaker. Even without the threat of a trade war, however, the exchange rate impact on exports in the current enviroment may be stronger that that in 2015-16, as suggested by the recent appreciation of the real effective exchange rate compared with the CNY index. The moral high ground of an appreciating currency better suits Beijing at this early stage om the trade negotiations. We see potential for the renminbi to appreciate to as much as 98-100 vs the CNY index in the coming months, before the authorities act to rein it in.
RMN index rose from 96.9 on date of publication to 98 on 20 June 2018. It then collapsed back to 92.4 at the end of July as markets began to price in the effects on US-Sino trade war.