FXStreet (Bali) – The Asian FX Strategy Team at Nomura summarizes today’s People’s Bank of China (PBoC) press briefing on the Yuan, which has managed to appease market averse conditions, if only temporarily.
Key Quotes
“The main focus of the People’s Bank of China (PBoC) press briefing today was that “yuan exchange rate adjustment is almost completed,” “there is demand for devaluation of yuan vs USD,” and that the PBoC “will step in when the market is distorted.”
“The remainder of the comments were similar to previous statements from the PBoC on having a market determined exchange rate, positive development for internationalisation, and RMB to enter an appreciation path in the future (similar to previous PBoC Q&A statements).”
“The PBoC still has two powerful tools to control spot USD/CNY. The first is intervening in the FX markets by selling USD and China has significant capacity to continue to do this with July FX reserves at USD3.65bn (24x imports and 3x short-term debt). The PBoC highlighted that it “will step in when the market is distorted,” which could imply action to smooth rather than to change the trend.”
“The second powerful control mechanism on USD/CNY is the fixing and the ability to adjust the fixing due to “demand and supply” factors. There has not been strong evidence that it has deviated from the new methodology for determining the fixings, but this remains a risk as we have seen historically.”
“Clearly both tools to manage the USD/CNY rate would be a step backwards from the market determined regime China is pushing for, but in times of significant speculative position building, the risks are that these measures could be taken.”
(Market News Provided by FXstreet)