Is China doing its Part?

This week, China widened the Yuan’s trading band outright to +1% above or below the central parity rate (the PBoC fix before trading). Previously they had been using +0.5%. Against the EUR, GBP and JPY, the float is up to +/-3%. Optically, it is another step in the liberalization of the CNY exchange rate towards full convertibility. Fundamentally, it will take some of the pressure off China on allowing more CNY appreciation. It is supposed to be a well-timed political move that proves that reformists are in charge and continue to push forward key financial reforms. Currency flexibility can only be positive for “equities by making it easier for policy makers to balance growth and inflation.” Analysts expect the pace of CNY appreciation is going to be dictated by the USDCNY fix. So far this year, the fix has lagged behind the 5% down trend in 2011.

Below are some other highlights of the week:


  • NZD: A plethora of Kiwi data showed that the REINZ house sales in March recorded the best monthly increase in nearly five-years, rising +25.3%, y/y, after a +37%, y/y, increase in February. Other releases showed that the performance of services index fell -1.9 points last month to a seasonally adjusted figure of 53.9. Digging deeper, food prices were down -1%, m/m, in March, following a +0.6% rise in February.
  • KRW: Korea’s import prices rose +3.5%, y/y, in March, decelerating from a +5.2% rise in February while export prices remained unchanged, compared with a +2.1%, y/y, gain in February.
  • INR: Wholesale Price Index inflation fell slightly to +6.9% in March from +7% in February. More importantly, core-inflation dropped further to +4.7%, y/y, from the high of +8.2% in November last year and +5.8% in February. Will they RBoI cut repo?
  • AUD: The RBA’s minutes were in line with this week’s policy statement, signaling an easing move in May conditioned on moderating inflation outlook. Policy members judged that domestic growth has slowed since the RBA last eased policy in late 2011 and “a case could be made for further easing” once the Board has the opportunity to review comprehensive inflation data next week. The market is pricing in a -25bp cut in May. Expect the AUD to remain vulnerable heading into the meeting.
  • SGD: Singapore non-oil exports unexpectedly fell -4.3%, y/y, in March, down from the +30% rise in February and much weaker than the consensus forecast for +7%. The weakness is largely due to unspecified “non-electronic products” with electronic exports up +2.8% and the usually volatile pharmaceuticals output stable at +43%.
  • CNY: China’s SAFE (State Administration of FX) announced this week freedom in banks’ foreign exchange trading. Onshore Chinese banks will now be allowed to sell dollars short from this week on. This is basically an n extension of last weekend’s dollar yuan band widening announcement and is a “step in the right direction towards a more market-oriented FX regime.” Is the PBoC trying to prevent CNY TWI appreciation given the strong USD environment?
  • IMF: Boosted their economic growth forecast to +3.5% from 3.3% for this year.
  • JPY: The Nikkei reported that the BoJ is considering upward revisions to its CPI forecasts for 2012 and 2013 at its bi-annual update in late April. Already this week, BoJ Deputy Governor Nishimura said that the CBank “would implement additional easing if necessary”. Fear of more easing measures to be implemented at the 27 April meeting is trying to keep the yen in check. Any dollar traction remains contingent on higher US front-end yields.
  • NZD: ANZ consumer confidence rose to a three-month high this month at 114, up from 110.2, m/m. The markets does not expect the RBNZ to normalize rates this year given the elevated level of the Kiwi, especially as its neighbor and largest trading partner, Australia, looks set to ease rates in the coming months.
  • AUD: The Westpac Leading Index advanced +0.2%, m/m, in February following a revised +0.7% rise in January.
  • JPY: Japan’s adjusted trade deficit rose to -JPY621b in March from -JPY321b and much worse that the -JPY446b forecast. Despite export growth improving to +5.9%, y/y, from -2.7% in February, imports remained strong, up +10.5% last month. The market continues to focus on the prospect of easing at the next meet on April 27th. Logically, this should keep JPY heavy in the near term.
  • NZD: Kiwi CPI rose +0.5%, q/q, in Q1 and in line with expectations. However, y/y, inflation is subdued at +1.6%, down from +1.8%, y/y, in Q4 and well below the +2% mid-point of RBNZ’s inflation target band.
  • BRL: Brazil’s Copom (CBank of Brazil) cut the Selic (overnight) rate to +9% (just shy of an all-time low) in line with expectations.
  • CNY: Press reports that China may increase liquidity via reverse repo operations and reserve requirement ratio (RRR) cuts. FI traders expect the PBoC to conduct another two RRR cuts this year.
  • AUD: The Aussie export price index plunged -7%, q/q, in Q1 after a +1.5% decline in Q4. Import prices also slipped -1.2% in Q1, compared with a +2.5% rise in Q4.
  • MYR: Malaysia’s inflation fell to +2.1%, y/y, in March from +2.2% in February and the high of +3.4% in Q3 last year. Analysts believe that the BNM (CBank) is expected to keep rates on hold this year given the strength in domestic demand and rebounds in exports.
  • G20, IMF and World Bank meet in Washington this weekend.






  • Week starts with CNY flash PMI and Aussie CPI and PPI
  • CAD quiet with Core retail sales
  • USD, JPY and the Kiwi’s bring us CBank rate announcements
  • New and Pending Home sales are delivered to us from the US
  • GBP gives us preliminary GDP while the US advance
  • In mid-week we get to see consumer confidence in the US


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