4 Mar 2016
China: The PBOC on exchange rate policy - ING
Tim Condon, Chief Economist at ING, suggests that based on their view that it’s a CFETS basket peg and on ING’s USD/Majors forecast, our yearend USDCNY forecast is 6.65.
Key Quotes
“A posting on the PBOC website said the CFETS NEER depreciated 0.52% in February, the BIS NEER, 0.35% and the SDR NEER, 0.14%: “Generally, the three indices changed slightly… which is a reflection of overall stability of the RMB exchange rate against a basket…” As far as guidance, the statement noted that the average daily difference between the USDCNY fixing rate and the previous close, 179 pips, showed “that market makers had taken into consideration not only the CFETS basket but also the BIS and SDR basket when submitting their daily central parity quotes.”
We’re mindful of what PBOC Governor Zhou told Caixin, “…we will significantly enhance the reference to a basket of currencies. But this does not mean pegging to a basket, as there are many other factors influencing the exchange rate.” However, our forecasts assume it’s a CFETS basket peg.
Based on ING’s USD/Majors forecast, our yearend USDCNY forecast is 6.65 (spot, 6.53, Bloomberg consensus 6.73, NDF 6.72). After the 811 devaluation the CNY joined DXY as the principal external drivers of currencies in the rest of Asia ex-Japan. Our basket peg assumption implies a return to the pre-811 state. The exception is USDKRW, which has been revealed to be extremely sensitive to USDCNY.
February foreign reserves data is due on Monday, March 7. Barring a couple of small increases reserves have been falling since July 2014. A surprise could overshadow any economic news coming out of the Two Meetings (the NPC starts tomorrow). The consensus forecast is US$3.197tr (prior US$3.231tr).”
Key Quotes
“A posting on the PBOC website said the CFETS NEER depreciated 0.52% in February, the BIS NEER, 0.35% and the SDR NEER, 0.14%: “Generally, the three indices changed slightly… which is a reflection of overall stability of the RMB exchange rate against a basket…” As far as guidance, the statement noted that the average daily difference between the USDCNY fixing rate and the previous close, 179 pips, showed “that market makers had taken into consideration not only the CFETS basket but also the BIS and SDR basket when submitting their daily central parity quotes.”
We’re mindful of what PBOC Governor Zhou told Caixin, “…we will significantly enhance the reference to a basket of currencies. But this does not mean pegging to a basket, as there are many other factors influencing the exchange rate.” However, our forecasts assume it’s a CFETS basket peg.
Based on ING’s USD/Majors forecast, our yearend USDCNY forecast is 6.65 (spot, 6.53, Bloomberg consensus 6.73, NDF 6.72). After the 811 devaluation the CNY joined DXY as the principal external drivers of currencies in the rest of Asia ex-Japan. Our basket peg assumption implies a return to the pre-811 state. The exception is USDKRW, which has been revealed to be extremely sensitive to USDCNY.
February foreign reserves data is due on Monday, March 7. Barring a couple of small increases reserves have been falling since July 2014. A surprise could overshadow any economic news coming out of the Two Meetings (the NPC starts tomorrow). The consensus forecast is US$3.197tr (prior US$3.231tr).”