19 Nov 2015
USD/CNY: bullish bias but watch intervention - BTMU
FXStreet (Guatemala) - Analysts at Bank of Tokyo Mitsubishi noted the conditions surrounding USD/CNY.
Key Quotes:
"The new-fangled restriction against onshore lending to offshore is some sort of an offshore interest rate defense of the currency. But foreigners are still not the key constituency: Main Street China is whom PBOC has to reassure. For such a heavily indebted economy, should push came to shove officialdom has to care more about the interest rate than the exchange rate.
That view is behind a # of foreign house views for much higher USD/CNY. But knowing officialdom dare not spark capital flight, our expectation is still for more of a long (= lotsa reserves) losing (= sterilized intervention) battle. In the current market environment, while we have a bullish bias we cannot rule out intervention. The lack of lending in October probably meant a bigger headline shrinkage in industrial profits."
Key Quotes:
"The new-fangled restriction against onshore lending to offshore is some sort of an offshore interest rate defense of the currency. But foreigners are still not the key constituency: Main Street China is whom PBOC has to reassure. For such a heavily indebted economy, should push came to shove officialdom has to care more about the interest rate than the exchange rate.
That view is behind a # of foreign house views for much higher USD/CNY. But knowing officialdom dare not spark capital flight, our expectation is still for more of a long (= lotsa reserves) losing (= sterilized intervention) battle. In the current market environment, while we have a bullish bias we cannot rule out intervention. The lack of lending in October probably meant a bigger headline shrinkage in industrial profits."