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.
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