Analysts at Danske Bank, point out that USD/CNY continues to rise and that the correlation with USD index has broken down. They see little sign of FX intervention via higher rates in the CNH offshore market but they warn that could come soon.
Key Quotes:
“Financial stress has risen sharply since the trade conflict with the US escalated on 15 June. CNY and equities have tumbled and bond yields are lower following monetary easing through reductions of the reserve ratio requirements (RRR) for banks.”
“We believe that the People’s Bank of China will soon step up intervention to stem the downward pressure on CNY. However, we see downside risks to CNY in the medium term related to an escalation of the US-China trade war and diverging monetary policy.”
“Chinese money market rates heading down – reflects turnaround in monetary policy after tightening in 2017.”
“Correlation with EUR/USD broken down – CNY weakening not related to weaker USD this time.”
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