Allan von Mehren
Danske Bank A/S
Stronger USD has put depreciation pressure on CNY
Depreciation pressure on the CNY has resumed as the USD strengthened. China will manage the CNY with a closer eye on trade weighted currency. Hence USD strength will generally lead to a weaker CNY versus USD.
Trade-weighted CNY higher over past month
Trade-weighted CNY close to levels prior to ‘devaluation’.
CNH weakening more than CNY
The CNH has weakened more than the CNY, as is normal when the CNY depreciates.
CNH vs CNY: look for intervention soon to narrow spread
The CNH-CNY spread has pushed higher lately. This is normal when USD/CNY increases. However, we are close to levels where the PBoC has intervened to reduce the CNH-CNY spread. It is a requirement of the IMF with regard to SDR inclusion that CNH and CNY are close to the same level.
We look for a further weakening of CNY on a12M horizon The CNY has become more market based following the FX reform on 11 August. Relative monetary policy between the Fed and the PBoC will work in favour of a weaker CNY versus USD over next year. We do not believe China will allow a big devaluation, as this would trigger capital outflows and be destabilising for China and the world.
Depreciation pressure on the CNY has resumed as the USD strengthened. China will manage the CNY with a closer eye on trade weighted currency. Hence USD strength will generally lead to a weaker CNY versus USD.
Trade-weighted CNY higher over past month
Trade-weighted CNY close to levels prior to ‘devaluation’.
CNH weakening more than CNY
The CNH has weakened more than the CNY, as is normal when the CNY depreciates.
CNH vs CNY: look for intervention soon to narrow spread
The CNH-CNY spread has pushed higher lately. This is normal when USD/CNY increases. However, we are close to levels where the PBoC has intervened to reduce the CNH-CNY spread. It is a requirement of the IMF with regard to SDR inclusion that CNH and CNY are close to the same level.
We look for a further weakening of CNY on a12M horizon The CNY has become more market based following the FX reform on 11 August. Relative monetary policy between the Fed and the PBoC will work in favour of a weaker CNY versus USD over next year. We do not believe China will allow a big devaluation, as this would trigger capital outflows and be destabilising for China and the world.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
EUR/USD fluctuates near 1.0700 after US data
EUR/USD stays in a consolidation phase at around 1.0700 in the American session on Wednesday. The data from the US showed a strong increase in Durable Goods Orders, supporting the USD and making it difficult for the pair to gain traction.
USD/JPY refreshes 34-year high, attacks 155.00 as intervention risks loom
USD/JPY is renewing a multi-decade high, closing in on 155.00. Traders turn cautious on heightened risks of Japan's FX intervention. Broad US Dollar rebound aids the upside in the major. US Durable Goods data are next on tap.
Gold stays in consolidation above $2,300
Gold finds it difficult to stage a rebound midweek following Monday's sharp decline but manages to hold above $2,300. The benchmark 10-year US Treasury bond yield stays in the green above 4.6% after US data, not allowing the pair to turn north.
Worldcoin looks set for comeback despite Nvidia’s 22% crash Premium
Worldcoin price is in a better position than last week's and shows signs of a potential comeback. This development occurs amid the sharp decline in the valuation of the popular GPU manufacturer Nvidia.
Three fundamentals for the week: US GDP, BoJ and the Fed's favorite inflation gauge stand out Premium
While it is hard to predict when geopolitical news erupts, the level of tension is lower – allowing for key data to have its say. This week's US figures are set to shape the Federal Reserve's decision next week – and the Bank of Japan may struggle to halt the Yen's deterioration.