The CNY has been fixed mildly weaker than the basket move suggested, for most days in the past three months as the authorities appeared to have been avoiding CNY outperformance against its Asian peers, according to Frances Cheung, Research Analyst at Westpac.
Key Quotes
“After the recent depreciation, the CNY may consolidate around 6.3494-6.4335, the 100DMA and 38.2% retracement (from 2014 low/2017 high) respectively.”
“Recent indicators point to a low capital outflow risk. Balance of FX settlement and sales by banks on behalf of clients turned positive for both spot and forward contracts in April.”
“On the other hand, inflows into Chinese equities and bonds have quickened. In view of the RMB liquidity demand, China enhanced liquidity provision for offshore. In particular, offshore investors under Stock Connect are allowed to access onshore China FX market for funds and FX hedges. This should reduce greatly the risk of spikes in CNH forward points.”
“The next wave of index-induced allocation into onshore China is likely to come around August.”
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