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16 Mar 2015
USD/CNY band widening? – RBS
FXStreet (Barcelona) - Gao Qi, Strategist at RBS, notes that conditions for USD/CNY band widening appear, but are not matured yet, further expecting PBoC to widen the band after the Fed rate lift-off.
Key Quotes
“We note USD/CNH spot surged on Friday afternoon on concerns over USD/CNY band widening as the annual session of the 12th National People’s Congress (NPC) was going to conclude on 15 March. In addition, the PBoC announced on 15 March last year to expand the band to 2.0% on either side of the fixing from previous 1.0%.”
“We think USD/CNY spot trading close to the fixing could be a prerequisite for a daily trading band widening.”
“As the pair is now trading not far away from the upper bound of daily trading band, any premature widening could add to pressure on the CNY devaluation (as what happened last Friday afternoon) and encourage capital exodus that are not in Chinese authorities’ interest. It could explain why both PBoC Deputy Governor Yi Gang and Advisor Chen Yulu have intended to cool down market expectations of trading band widening in 2015 on the sidelines during the NPC’s annual session, compared to intensive comments on chances or necessaries of band widening made by regulators or official researchers prior to the three band widening.”
“We think the period after the Fed’s liftoff and prior to President Xi’s visit could be a likely time window for USD/CNY trading band widening, but it could still be subject to neutral market expectations of the CNY valuation”
Key Quotes
“We note USD/CNH spot surged on Friday afternoon on concerns over USD/CNY band widening as the annual session of the 12th National People’s Congress (NPC) was going to conclude on 15 March. In addition, the PBoC announced on 15 March last year to expand the band to 2.0% on either side of the fixing from previous 1.0%.”
“We think USD/CNY spot trading close to the fixing could be a prerequisite for a daily trading band widening.”
“As the pair is now trading not far away from the upper bound of daily trading band, any premature widening could add to pressure on the CNY devaluation (as what happened last Friday afternoon) and encourage capital exodus that are not in Chinese authorities’ interest. It could explain why both PBoC Deputy Governor Yi Gang and Advisor Chen Yulu have intended to cool down market expectations of trading band widening in 2015 on the sidelines during the NPC’s annual session, compared to intensive comments on chances or necessaries of band widening made by regulators or official researchers prior to the three band widening.”
“We think the period after the Fed’s liftoff and prior to President Xi’s visit could be a likely time window for USD/CNY trading band widening, but it could still be subject to neutral market expectations of the CNY valuation”