Forex Flash: China would likely lower inflation from Commodity price drop - Nomura

FXstreet.com (Barcelona) - Nomura economists believe that should commodity prices continue to fall, China would likely see lower inflation against a lower commodity price backdrop, which could reduce the risks of policy tightening (through FX appreciation/rate hikes).

However, they feel that China´s current account surplus is expected to increase on lower commodity prices, with a a pickup in capital inflows could still mean CNY appreciation. They write, “We would also expect pressure from the US for greater CNY flexibility/appreciation to grow (underscored by the recent US Treasury semi-annual FX report (12 April 2013)). Indeed, discussions on widening the spot USD/CNY band have heated up recently and we believe we could see a move within the next six months with USD/CNY (CNH) possibly making new lows.”