RMB: Continued stability in the basket - ANZ

CNY strengthened to its highest level against the USD since August 2016 and unless there is a turnaround in the dollar, a near-term move in USD/CNY towards 6.6000 cannot be ruled out, according to analysts at ANZ.

Key Quotes

“Sentiment in the CNY finally improved after the PBoC’s concerted efforts to boost confidence in the currency since early this year. Also helped by USD weakness, the yuan strengthened to its highest level in a year.” 

“However, when the CFETS RMB index firmed to a five-month high of 94.03 in early August, it appeared that the authorities were trying to cap it there by setting the fixings weaker than expected. There was a brief period when we estimated that the “countercycle adjustment factor” (or CCAF) could have turned from being consistently biased towards stronger fixings towards modestly weaker ones in order to keep the RMB index below 94.0.”

“Looking ahead, where USD/CNY will trade still largely depends on the USD. With the authorities successfully clamping down on outflow pressures and foreign inflows starting to increase, a near-term move in USD/CNY towards 6.6000 cannot be ruled out, especially if the USD remains weak.”

“However, we expect the RMB index to continue staying within a narrow 93.0–94.0 range. We believe the authorities are comfortable with where the yuan is, and the main focus is to maintain stability in the RMB index in the run-up to the all-important 19th National Congress in the autumn.” 

“Fundamentally, we think that conditions remain in place to keep the RMB broadly stable. Despite some softening in recent data prints, we expect the Chinese economy to grow 6.7% this year (slightly higher than official target of 6.5%). China runs a current account surplus of around 1.4% of GDP. Currency stability has helped discourage USD hoarding by exporters, while capital outflows remains closely monitored and regulated by the central bank.”