Intraday Analysis from FXMarketAlerts.com
Receive FREE Weekly Strategies.Published at 01:52 (GMT) 22 Mar
USD/CNY 1Y NDF is holding around last Friday's close of 6.66620 at 6.6640. It shot up to 6.6700 last week after tensions with the US escalated on Premier Wen Jiabao's departing words at the NPC on CNY valuation. With trade tensions dangerously escalating, a more reconciliatory tone from the Commerce Ministry has helped the 1Y NDF to ease back. China took the first steps to ease tensions by announcing that the Vice Minister of Commerce, Zhong Shan, will lead a delegation to the US on 24-26 March to discuss trade balances and conflicts. Both sides know very well that a full blown trade war will not do either side or the global economy any good. However, at the same time, the environment is likely to remain tense ahead of the Treasury's 15-April report and could keep the 1Y NDF well supported above the 6.6200 level ie limited downside near term. On the inflation front, PBOC adviser Fan Gang, highlighted that the 'inflation threat' is 'not particularly big' at the moment and instead, the focus is seemingly on raging asset-price bubbles. The exchange rate tool won't be the most effective to address this issue, instead one could expect more administrative measures to contain asset-price bubbles. The usual Friday rumours of rate hikes/RRR hikes circulated last week but a formal hike in interest rates may also be delayed until greater flexibility is introduced for CNY. Policy makers have noted previously that an exit from the loose monetary and fiscal stance will be taken holistically rather than independent exchange rate or interest rate changes. With the Chinese delegation due for talks in the US this week, it may help to ease tensions and may buy PBOC a bit more time but the bottom line is that when all is said and done, the US and other emerging markets may want to see more action than talk from China. For the 1Y NDF, we continue to look for sideways trading between 6.6200-6.6700 for now. CL
