CNY: Capital outflow pressures eased – Westpac

The Chinese yuan has strengthened by about 4% against the US dollar over the past 12 months, underperforming most other Asian currencies except the HKD and the PHP and is against the backdrop of weak DXY, according to Frances Cheung, Research Analyst at Westpac.

Key Quotes

“Capital outflow pressures have eased over the past months. Onshore entities have become more willing to exchange USD proceeds into CNY. Banks’ net settlement of foreign currency into RMB returned to positive amounts in September and October, after 26 consecutive months of negative readings (i.e. net sales). That said, outflows via the error and omission item under the balance of payment remain significant.”

“In onshore China, deleveraging efforts continue, rendering the money market mildly tight. There have also been reports (no official confirmation) that some CNY fund flows to offshore are stopped. As such, at times of tight offshore CNH liquidity, upward movements in CNH forward points and implied rates can be amplified as it is not easy to source funds from onshore China.”