Forex - China Flows: USD/CNY; Reduced currency market intervention fueling speculation of a cut in RRR


Published at 03:46 (GMT) 04 Nov


China Flows: USD/CNY; Reduced currency market intervention fueling speculation of a cut in RRR (VFZC7601)

CD: Reduced currency market intervention by China's central bank is fueling speculation it will cutlenders' reserve requirements for the first time in two years to boost the supply of yuan. The nation's foreign-exchange reserves slid by a record $105.5 billion in the third quarter to$3.89 trillion as the People's Bank of China scaled back dollar purchases that add yuan to the financial system. Major lenders will need to set aside 19.5 percent of deposits in reserve by June 30 and 19percent by the end of 2015, down from 20 percent now, based on the median forecast in a Bloomberg survey published on Wednesday.

More sideways movement seen in onshore USD/CNY, with prices caught between 6.1177 - 86. 1Y NDFs are seen between 6.2455 - 6.2510. As we wrote previously, any upticks above 6.2500 is likely to be sold off ahead of the clutch of data to be released next week, with prices likely to return to sub 6.2400 levels soon. However, rather than expecting onshore spot to move lower, we are actually looking for the spot - NDF spread to narrow. Any dips below 6.110

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