CNY: A considered move from the PBoC – ING

Even though the model-based estimates of where the People's Bank of China should be fixing USD/CNY are not moving much, the PBoC is fixing USD/CNY decidedly lower. It seems increasingly clear that Chinese authorities want a stronger renminbi, ING's FX analyst Chris Turner notes.

USD/CNY may try to test 7.13

"Why is that? The stronger renminbi could be Beijing's signal of 'a responsible adult being in the room' when it comes to currency policy – a move to improve the renminbi's status in international finance. It also provides a welcoming environment for international capital. Global investors are running overweight emerging market positions currently, with China a large weight in any decision."

"But as Lynn Song, ING's Greater China economist, notes: 'A stronger CNY will help preserve purchasing power of households at a time when boosting consumption looks to be an important medium-term goal'."

"That makes a lot of sense. For FX markets, a stronger renminbi could carry the likes of the South African rand, Australian dollar and Brazilian real on its coattails. We like those currencies, as long as equity markets remain benign. And clearly, there are downside risks to our year-end forecast for USD/CNY at 7.13."