Further CNY strength looks unlikely – UOB

Analysts at UOB Group have assessed the recent price action around the Chinese currency.

Key Quotes

“A whole host of factors resulted in recent intense strength in CNY. These ranged from broad USD weakness, to improvement in various China macroeconomic indicators to Chinese corporates possibly caught holding excessive amounts of USD export proceeds”.

“Various market and technical indicators suggest that CNY strength may be overdone over the near term. In addition, possible removal of the 20% reserve requirement rule for purchases of foreign exchange forwards may signal the PBoC’s discomfort over further CNY strength over the near term”.

“Over the short term, CNY is overbought. But until decisive USD strength returns, immediate renewed weakness in the CNY may be mild. Volatility on the other hand is expected to stay elevated”.