China: Exchange rate policy uncertainty – ING

By FXStreet Tim Condon, Chief Economist at ING, suggests that in the absence of a clear guidance on the exchange rate policy from China, ING maintains their year-end 6.54 USDCNY forecast (spot 6.56, Bloomberg consensus 6.65, NDF 6.67).

Key Quotes

“We don’t think we’re alone in having spotted a change in the PBOC’s USDCNY fixing behaviour in the second week of January. After having depreciated the CNY fixing rate by 3.26% from end-October through the first week of January, a period associated with elevated financial market turmoil including a 33% plunge in global oil prices, the PBOC stabilized the USDCNY fixings; the CNY appreciated 0.2% by end-January. We credit the policy shift for the eventual subsiding of financial market volatility.

A story in The Wall Street Journal claims that at a meeting on January 4 top economic officials told the PBOC that “the primary task is to maintain stability.” According to the article the PBOC “ditched the market-based mechanism” it presumably had been following from November through early January and “returned to the old way of adjusting the yuan’s daily value higher or lower based on whatever suits Beijing best.”

The article reinforces our view that a policy change occurred in early January. We also continue …read more

Source:: FX Street