18 Feb 2015
PBoC pressed to defend the CNY trading band – ING
FXStreet (Barcelona) - Tim Condon of ING, notes that the Chinese authorities view last year’s 2.44% CNY depreciation as acceptable, and further reviews the 6.190 yearend spot USDCNY forecast for upward revision.
Key Quotes
“The spot USDCNY premium to the fixing rate stayed at 1.99% for a second consecutive day yesterday and the USDCNH premium to spot USDCNY widened to 0.44% from 0.26%.”
“We think the PBoC authorities would like to join their regional counterparts in allowing the CNY to depreciate but they don’t want to encourage large-scale hot money outflows or import turbulence into the onshore financial markets.”
“So far they’ve succeeded. Spot CNY has depreciated 0.79% year-to-date but front-end, 1- to 3-month forward implied yields have actually fallen. In contrast, the 0.95% year-to-date depreciation in the offshore CNH has pushed up the offshore forward implied yield curve by 70-100bp.”
“Rising offshore forward implied yields have been contagious to offshore interest rate swaps. In contrast, falling cash bond yields have exerted a greater pull on onshore swap rates.”
“With spot trading at the 2% limit to the fixing, further depreciation pressure has to come from depreciating the CNY fixing rate.”
“We suppose the authorities view last year’s 2.44% depreciation of the spot rate as acceptable.”
“We are reviewing our 6.190 yearend spot USDCNY forecast for upward revision (spot 6.2548, latest fixing 6.1330, Bloomberg consensus 6.16, NDF 6.36).”
Key Quotes
“The spot USDCNY premium to the fixing rate stayed at 1.99% for a second consecutive day yesterday and the USDCNH premium to spot USDCNY widened to 0.44% from 0.26%.”
“We think the PBoC authorities would like to join their regional counterparts in allowing the CNY to depreciate but they don’t want to encourage large-scale hot money outflows or import turbulence into the onshore financial markets.”
“So far they’ve succeeded. Spot CNY has depreciated 0.79% year-to-date but front-end, 1- to 3-month forward implied yields have actually fallen. In contrast, the 0.95% year-to-date depreciation in the offshore CNH has pushed up the offshore forward implied yield curve by 70-100bp.”
“Rising offshore forward implied yields have been contagious to offshore interest rate swaps. In contrast, falling cash bond yields have exerted a greater pull on onshore swap rates.”
“With spot trading at the 2% limit to the fixing, further depreciation pressure has to come from depreciating the CNY fixing rate.”
“We suppose the authorities view last year’s 2.44% depreciation of the spot rate as acceptable.”
“We are reviewing our 6.190 yearend spot USDCNY forecast for upward revision (spot 6.2548, latest fixing 6.1330, Bloomberg consensus 6.16, NDF 6.36).”