Week in FX Asia – PBoC Ever Present Stalling Yuan Rise

China money market pressure remains on display going into the weekend as short-rates continue to hit multi-month highs – this has lead to speculation that the PBoC may resume liquidity injections if rates move too high. Dealers say the bond market will likely keep consolidating, as demand for cash tends to rise near the end of the year.

The Yuan is ending the week higher against the dollar. Friday’s dollar buying by Chinese dealers has ended up counterbalancing earlier corporate selling. The PBoC set the USD/CNY central parity rate at 6.1333, a tad lower than Thursday’s close of 6.1335 after assumingly convincing the banks to buy dollars. The Central Banks presence suggests that policy makers do not want their own currency to rally too quickly – a common procedure amongst central banker.

The currency’s flight higher has analysts speculating that the currency pair will see a strong floor at 6.0800 from the PBoC in the coming weeks. The Yuan’s movement of late, mostly on the back of stronger data, has some investors expecting the psychological 6-trading handle to be broken before year end. Year-to-date the Yuan has risen +2.3%.

Offshore data shows that one-year USD/CNY NDF’s rose to 6.1478, implying a further +1% fall by the Yuan one year forward. In the free-floating Hong Kong spot market, the currency pair ended the week trading CNY6.075.


WEEK AHEAD

* USD Advance Retail Sales
* USD Consumer Confidence
* EUR German Unemployment Change
* USD Consumer Price Index
* EUR German Consumer Price Index
* USD Federal Open Market Committee Rate Decision
* USD Fed Pace of Treasury Purchases
* NZD Reserve Bank of New Zealand Rate Decision
* JPY Bank of Japan Rate Decision
* EUR Euro-Zone Consumer Price Index
* CAD Gross Domestic Product
* CNY Manufacturing PMI
* USD ISM Manufacturing

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell