In anticipation of greater currency reforms, some interpret PBOC Governor Zhou’s recent remarks as signal of widening of the current 2% USD/CNY trading band, according to Rob Carnell, Chief Economist at ING.
“The CNY has strengthened substantially following a speech by PBoC Governor Zhou Xiaochuan and coinciding with the end of China’s long holidays. The CNY’s move has taken most Asian currencies with it. Zhou’s comments that FX reforms and reduced capital curbs would happen when the time was right, and just ahead of the 19th Congress, have been taken by some as a sign that China could widen its current 2% CNY trading range soon after the end of the Congress. Although the current trading band is not much of a binding constraint on the CNY, the Governor’s remarks indicate policy confidence in the currency, and the success of the recent strategy to reduce currency outflows.”
“The CNY’s gains are not all one-sided though. Helping CNY strength is also a dollop of USD weakness, which is creeping in even as confidence in the US economy improves, and expectations for the Fed increase, as US tax reform expectations wane.”
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