"From a current account perspective, we see the dynamics as still lesssupportive than before. The renewed widening of the services deficit and also capital account outflows is driving more foreign currency demand onshore."
"Despite the rise in the trade surplus, the foreign-related balance onshore has declined suggesting a shift away to RMB trade but also more foreign currency being withheld. In the current context though, corporates refraining from selling foreign currency does not favour CNY appreciation. While this can be positive for the CNY once CNY expectations shift, that is not playing a role at this time.
"The People's Bank of China's tolerance of currency weakness in the absence of speculative froth also opens up room for further CNY weakness, with seasonal dividend payout flows an added bearish factor over the short run.""The PBOC has also shown tolerance in USD/CNY’s rise through the key 7.0 level this time, which may indicate a shift towards accepting controlled currency depreciation to help support the economy.
"Thus, the yield spread might not narrow as much as we expected. Furthermore, China's growth recovery has been weaker than expected so far. This may be dragging short term portfolio inflows."