CNY: A growing fixing divide – ANZ

Khoon Goh, Head of Asia Research at ANZ, explains that the daily yuan fixings have materially diverged from the prescribed formation mechanism and a clear strengthening bias in the fixings has been apparent since April, and intensified from mid-May. 

Key Quotes

“Whether this signals a permanent shift in the central parity rate formation mechanism remains to be seen. But the onshore CNY spot rate has not been following the signal from the fixing, resulting in a growing divergence.”

“Closing the gap between the spot rate and fix would require a return to the formation mechanism, or active FX intervention to force the spot rate towards where the fix is set. Today’s price action where the spot rate swiftly and briefly converged to the fix suggests the authorities are opting for the latter approach.”