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China: Policy bias on the CNY appears to have shifted – Deutsche Bank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 15, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Research Team at Deutsche Bank, notes that while the market has better internalized the upcoming Fed lift-off, it has been forced to contend with curveballs from both the ECB and PBOC in recent days.

    Key Quotes

    “With the transition into a post-SDR world, the policy bias on the CNY appears to have shifted. Since November, as it became clearer that the RMB would be included in the SDR basket, depreciation in the currency has resumed. Weakness has accelerated in the past week, with spot breaking through key technical levels, with only limited resistance from authorities.”

    “Moreover, the CNH-CNY basis has widened out dramatically in both spot and forwards. This has raised the market’s concerns that China is undergoing another round of depreciation. This concern has been further fuelled by weaker-than-expected economic data, and the larger-than-expected fall in FX reserves in November.”

    “We offer three possible explanations for the recent shift in FX policy: (1) the growing limitations of the impossible trinity with large US-China monetary policy divergence ahead; (2) a gradual shift from a ‘managed-float’ to a ‘market-driven’ FX regime, with a commitment to reduced intervention; (3) a desire to counteract the rise in the CNY NEER.”
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