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17 Mar 2014
Flash: Near-term band widening impact on the Yuan - Nomura
FXStreet (Bali) - Nomura looks at the near-term implications to the RMB after the USD/CNY band widening announcement to 2% by the PBoC on Saturday.
Key Quotes
"The near-term impact on RMB from the widening of the USD/CNY daily trading band is unlikely to be as clear cut as history suggests (Figure 1), given the mixed market expectations on the near-term RMB trend, the risk of continued PBoC USD purchases and other global risk factors such as Russia and Ukraine. In our recent US and Europe marketing trip, we noted that there was significant uncertainty among clients, as some feared greater depreciation risks from a wider band, while others saw this as an opportunity to build on long RMB positions."
"Our view is that the PBoC may initially remain on the bid in spot USD/CNY and hold the fix stable. However, we believe the fix is likely to move lower soon after the band widening and especially ahead of major international political events in April, assuming no major negative global events emerge in the interim. With a lower fixing, we expect USD/CNH to fall, as the market is likely to judge that the PBoC’s drive to push out current speculative long RMB positions (at least for now) has been completed. That said, even after the band widening, we believe there is still a risk of China continuing its recent tactic of pushing onshore spot higher to sustain fears of further increases in USD/CNH before easing off from this new interventionist stance."
Key Quotes
"The near-term impact on RMB from the widening of the USD/CNY daily trading band is unlikely to be as clear cut as history suggests (Figure 1), given the mixed market expectations on the near-term RMB trend, the risk of continued PBoC USD purchases and other global risk factors such as Russia and Ukraine. In our recent US and Europe marketing trip, we noted that there was significant uncertainty among clients, as some feared greater depreciation risks from a wider band, while others saw this as an opportunity to build on long RMB positions."
"Our view is that the PBoC may initially remain on the bid in spot USD/CNY and hold the fix stable. However, we believe the fix is likely to move lower soon after the band widening and especially ahead of major international political events in April, assuming no major negative global events emerge in the interim. With a lower fixing, we expect USD/CNH to fall, as the market is likely to judge that the PBoC’s drive to push out current speculative long RMB positions (at least for now) has been completed. That said, even after the band widening, we believe there is still a risk of China continuing its recent tactic of pushing onshore spot higher to sustain fears of further increases in USD/CNH before easing off from this new interventionist stance."