USDCNY holding to the tight range - Westpac

Analysts at Westpac point out that Renminbi has maintained its run of stability with USDCNY holding to the tight range between 6.87 and 6.91 seen since the beginning of March.

Key Quotes

“The broader CFETS index has also been broadly steady in the last month, trading currently at 93 after having started the year at 95. Compare this to last year, when the PBOC was battling capital outflows on expected (and somewhat self-fulfilling) persistent depreciation versus the US dollar. This provided the catalyst for tighter FX restrictions. After a number of tightenings, the last at the beginning of 2017, it would now appear this policy has been largely successful in stymying the threat. Supporting this view, FX reserves have remained constant circa USD3.0trn over the past four months, indicating little need for intervention in FX markets.”

“Our central view on the Chinese economy is that authorities are bringing growth forward and shoring up stability currently so that the economy is well positioned ahead of the twice-adecade National Congress of the Communist party come November. While this is likely to see slower growth afterwards, potentially triggering calls for a weaker currency, we expect the authorities to instead favour a steady, calm hand. That leads us to forecast the CFETS index to be broadly flat (92 by end-2018) and for USDCNY to only drift higher to 7.25 with the US trend.”