Ahead today, the IMF will decide on the inclusion of CNY in the SDR basket. Investors are widely expecting the CNY to join the basked after recent comments and media reports that pointed at broad official support for the SDR reform. While recent IMF comments have suggested that the weight of CNY in the basket could be as high as 14%, CACIB economists are looking for a more politically sensitive 10% weight. CNY has been weakening ahead of the decision with some market participants speculating that Beijing could abandon its efforts to stabilize the currency after the SDR reform becomes a fact. There was very little in terms of official indications to corroborate those concerns and we suspect that there is little appetite for yet another bout of sharp CNY-selling that could undermine global risk appetite again.
That said, investors could remain anxious for now and that could undermine the currencies of China’s main trading partners like AUD and NZD.
USD/JPY has been range bound in recent weeks with positives in terms of data releases out of both the US and Japan seemingly offsetting each other. A potential risk off on the back of surprise CNY-devaluation, not our central case, could support JPY at least initially. In addition, we remain wary of any potential verbal intervention in USD ahead of the two Yellen speeches in Washington on Wednesday and Thursday. That said, we remain USD/JPY bulls over longer-term going into the Fed and BoJ meetings in December.
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