Bank of America's Woo Says Chinese Yuan May Drop 10 Percent

  • Slide in renminbi would be 'shock' to unprepared markets
  • Chinese currency drop would echo QE effect on yen, euro

China’s yuan may have further to fall after the nation shocked markets in August by devaluing its currency, according to David Woo, Bank of America Corp.’s head of global rates and currencies research.

“My gut tells me it could be as much as 10 percent,” Woo said in an interview on Bloomberg Television. “Letting the currency go is going to be part of a package of monetary easing, let’s call it Chinese quantitative easing.”

Woo likened China’s monetary policy to QE programs in Japan and the euro area, which prompted the yen and euro to depreciate. Financial markets aren’t prepared for a big slide in the Chinese currency, he said.

Chinese markets are closed for national holidays. The yuan was little changed at 6.3571 per dollar on Sept. 30. The currency’s trading band limits onshore yuan moves to 2 percent on either side of the reference rate.

“If you look at the 12-month forward, the markets are only pricing in less than a 3 percent depreciation of the renminbi, and then for one-month forwards it’s only pricing 1 percent,” New York-based Woo said. “If you get anything greater than 1 percent, that’s definitely going to come as a shock to the market.”

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