USD/CNY: PBoC’s tight controls on capital flows to limit yuan as an investment vehicle – Commerzbank
|The People’s Bank of China (PBoC) and the Hong Kong Monetary Authority (HKMA) intend to launch a new “Swap Connect”. At the same time, PBoC upgrades currency swap with HKMA. The yuan received a bit of a boost but is still seen struggling to strengthen due to PBoC’s tight controls on capital flows, economists at Commerzbank report.
Divergent path for USD and CNY rates to keep USD/CNY well supported
“A new ‘Swap Connect’ will allow international investors to participate in the China onshore interest rate derivative market. PBoC also said it has upgraded the currency swap facility with Hong Kong to a permanent agreement and expanded it to CNY800 bn. The aims are to provide long-term liquidity support to the Hong Kong market, help stabilize market expectations, and importantly, promote the development of the offshore CNY market in Hong Kong.”
“We see the latest initiatives as another small and incremental step from China to promote the internationalization of CNY. It will aim to promote greater settlement of bilateral trade in CNY. However, it still has a long way to go for CNY to be an investment vehicle because of PBoC’s tight controls on capital flows.”
“The divergent path for USD and CNY rates is still likely to keep USD/CNY well supported for now.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.