Nomura - Signs of a Shift in China’s FX regime

According to Craig Chan and Wee Choon, Asia FX Strategists at Nomura, there are signs of a shift in China’s FX regime, judging by the latest developments.

"The People’s Bank of China (PBoC) surprised us on Tuesday by fixing USD/CNY at 6.5130 – 170pips higher than our model projection – as we had expected China to keep the fixing extremely stable/to lower ahead of the G20 Finance Ministers and Central Bank Governors meeting on 26-27 February.

In addition, this was the first positive error against our model projection since 7 January 2016 (average -252pips error from 8 January to 15 February) and may represent another shift in the FX regime.

This was emphasised by PBOC Governor Zhou in his Caixin interview, in which he stated that China would manage the exchange rate regime more significantly when there is “short-term sentiment or herding behaviour”.
This may have been the reason for the heavy FX intervention and large downward USD/CNY fixings from 8 January to 15 February 2016. 
However, as short RMB positions have reduced substantially over the past few weeks and as global financial markets have stabilised somewhat, it may view conditions as favourable enough to allow for increased FX flexibility again."
Share on Google Plus

About Sir Ichimoku

Life is Short.
    Blogger Comment


Post a Comment