More than once, I have expressed the view that in the face of global slowdown, Chinese policy makers may want throw in the towel on yuan appreciation.
Markets too are beginning to price the possibility after the weak HSBC manufacturing PMI flash estimate and the on-going market jitters following the disappointments of Operation Twist and concerns on Europe.
Michael McDonough at Bloomberg Brief points us to the following chart, which suggests that the yuan non-deliverable forward contract is currently pricing in a depreciation of the currency.
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It’s too early to expect this fall. But, if the macro environment continues to deteriorate, policymakers will first stop the appreciation of yuan against the $US, and then we will see.