FXStreet (Bali) – The PBoC delivered a major surprise today by raising its USD/CNY fixing rate by almost 2%, notes Sean Callow, FX Strategist at Westpac.
Key Quotes
“This follows several months of extremely stable USD/CNY trade, amplifying the shock for markets. The PBoC also indicated there would be considerably greater volatility ahead. The market response was to sell AUD and Asian FX against USD but we expect AUD at least will stabilize soon.
“The daily fixing or reference rate (which sets the midpoint of the daily trading band, +/2%) has been persistently below the actual rate traded in the market. The PBoC announced that this divergence would not continue, with the daily fixing now to be with “reference to the closing rate of the previous day”.
“This does not mean the closing rate is the next day’s midpoint but it will be consistently a lot closer than it has been since the 2005 depeg. The market will play a much larger role. This is being reflected in a jump in implied yuan volatility. Other measures include extended trading hours.”
(Market News Provided by FXstreet)