Derek Halpenny, European Head of GMR at MUFG, notes that the risk appetite returned this week and most USD/EM Asia have already returned to pre-Brexit levels, apart from RMB, PHP and SGD.
“USD/CNY lived in its own world (not so surprisingly) and hovered between 6.68-6.70 over the last forecast period. Traders said onshore RHS flows were much bigger these days but USD/CNY remained capped below 6.70 amidst fear for stage management. USD/CNY's sidewalk should continue for the week ahead; after all the pair did rise all the way from 6.45 level in March.
The removal, or alleviation, of the CNY/CNH basis still tops China's FX to-do list before the redback's SDR basket participation. The entire USD/CNH curve could be under pressure especially the back-end e.g. basis in spot was only 100pips but in 1y stayed wide at 1000pips.”
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