USD/CNY: Don’t be surprised by intervention on sharp rises - Westpac

China’s Q2 GDP surprised to the upside, coming in at 6.9%, and industrial production rose to 7.6% from 6.5% notes Martina Song, Research Analyst at Westpac and suggests that given the recent backdrop and comments from officials, they wouldn’t be surprised to see any intervention on sharp rises in USD/CNY.  

Key Quotes

“The National Financial Work Conference last weekend reiterated authorities’ focus on deleveraging and commitment to stability. Chinese equities dropped at the beginning of the week in response to concerns around deleveraging. Commentary around the currency too was on stability.”

“Given this backdrop and comments from officials, we wouldn’t be surprised to see any intervention on sharp rises in USD/CNY. Talk of widening of the trading band seems unlikely to be accompanied by less intervention near term. USD/CNY slipped below 6.50 in the past week. Continued US dollar weakness should keep the pair contained below 6.80.”

“USD/CNH too should remain under pressure. With a very small spread between USD/CNY and USD/CNY, we would be watching similar levels. Interestingly, the CFETS RMB index has been falling steadily from around 93.5 two weeks ago to 93.”