China: PBOC’s market smoothing for Yuan – ING

By FXStreet FXStreet (Delhi) – Prakash Sakpal, Economist at ING, reiterates the research house view of 6.55 USDCNY forecast for end-2016 (latest 6.46, Bloomberg median 6.60, NDF 6.73).

Key Quotes

“A Reuters report cited unidentified sources involved in policy discussions as saying that the PBOC was ready to intervene in the FX market to prevent speculative attack on CNY in the offshore market and preventing the gap between offshore and onshore CNY from becoming destabilizing. We attribute recent widening of the gap to elevated growth uncertainty. The offshore spot CNH premium to onshore CNY spiked to 1.49% on Monday, the highest level since July.”

“We think the PBOC policy aims at restoring a pre-811 degree of convergence between the onshore and offshore forward curves (see figure). The strategy is to stabilize the spot USDCNY fixing, intervene in the onshore and offshore markets, and wait for the economic data to portray a recovering economy. We reiterate our 6.55 USDCNY forecast for end-2016 (latest 6.46, Bloomberg median 6.60, NDF 6.73).”

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Source:: FX Street