CNH and CNY price action has been more orderly - Westpac

Martina Song, Research Analyst at Westpac, notes that the early Jan 2016 jumps in the USD/CNY fixing rate stoked an extension of market expectations of yuan depreciation, with the 12 month NDF surging towards 7.00.

Key Quotes

“During Q2 16 however, China’s renewed public commitment to yuan stability and the benefit of a weaker USD (on the Fed’s steady hand and downgraded interest rate projections) pulled spot USD/CNY and USD/CNH lower. FX intervention also reportedly helped calm the nerves of Jan 2016.

USD/CNY and USD/CNH avoided trading much above 6.70 until the Oct week-long National Day holiday. Since then, USD/CNY and USD/CNH have traded higher, amid broad US dollar strength. This looks set to extend further as authorities seem less focused on defending a USD/CNY level. Capital outflows may however become an issue again in the future.

The spread between CNH and CNY has also been fairly narrow in recent months, especially compared to the period between Aug 2015 and early 2016. There have been some suggestions that jumps in HIBOR were aimed at limiting speculative appetite for short CNH positions by making them more expensive to fund.”