CNY: Overall stability is maintained - Westpac

CNY has been trading on the weak side but overall stability is maintained according to Frances Cheung, Research Analyst at Westpac.

Key Quotes

“While some market observers have the impression that President Xi is not aggressive on “market reform”, we note that this “market reform” term years back was referring more to merchandise trade and investment, rather than capital markets/FX as we understand currently. We suggest that investors do not read too much into it.” 

“CSRC Liu said China would continue with capital market opening. Prior to the NPC, PBoC Governor Zhou mentioned further FX reform, while PBoC Deputy Governor Yi during the NPC said that the current FX formation mechanism is very close to a market-driven mechanism hence two-way fluctuation is normal. Combining these comments, if there is any further FX reform, we believe it is more likely to be facilitated via relaxation on capital flows, and/or a lighter weight on the counter-cyclical adjustment factor in CNY fixing, while a wider trading band is not particularly meaningful given the daily volatility.”