Frances Cheung, Research Analyst at Westpac, notes that the sentiment in the Asian FX market has turned for the better on the back of upbeat economic data and hope for a constructive outcome from the trade talk between China and the US.
Key Quotes
“The CNY has also garnered support from strong CNY fixings (compared with estimates) and potential boost to domestic growth by stimulus measures.”
“FX settlement data suggests no deterioration in the flow picture for China in July, while the willingness to convert FX receipt in CNY rebounded.”
“We however stay cautious and the risk is for a reversal in sentiment if the trade talks yield non-material outcome which may well lead to renewed upward pressure on USD/CNY.”
“News that China was to ban yuan deposits and lending to offshore from the Shanghai FTZ led to a higher CNH curve.”
“If there is any restriction on flows from the free trade zone, offshore CNH liquidity will be tightened, and there is likely less swap selling in the CNH market with arbitrage flows reduced.”
“We expect the widened spreads between CNY and CNH points to stay in the near term.”
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