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The Chinese yuan is expected to decline just slightly through the course of this year as the central bank policymakers prioritize stability ahead of a key leadership meeting during the end of the year, noted Scotiabank in a research report. The Peoples Bank of China is expected to continue intervening in the foreign exchange market to underpin the value of the Chinese yuan.
Chinas foreign reserves have contracted in the last two-and-a-half years because of capital outflow. But they have stabilized recently around USD 3 trillion. According to Scotiabank, the USD/CNY pair is expected to trade at around 7.10 by the end of 2017.
Meanwhile, Chinas sovereign credit rating might be downgraded in the quarters ahead. Standard and Poors affirmed the nations AA- rating with a negative outlook in January 2017. S&P has underlined the economys dependence on credit-fuelled growth that might weaken its dependence to shocks and lower the governments policy options.
Sentiment toward China is expected to be volatile in the months ahead, affected by capital outflows, corporate debt overhang, housing market risks, authorities interventionist policies and uneven structural reform progress, added Scotiabank.