Easing tensions between the US and China could herald a near-term shift by Beijing on its renminbi policy, says Vishnu Varathan, regional market analyst, Asia, at 4Cast.
“Recent comments from Beijing on the scope for currency flexibility are not inconsistent with a Singapore-style managed float mechanism that regulates the renminbi against a basket of currencies. The trading band will probably show greater ‘flexibility',” he says.
“Another crucial element will be an inherent appreciation bias in the form of an upward nominal effective exchange rate slope that could be manipulated according to the stage of economic recovery, enabling a more enduring implementation of this FX mechanism.”
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