USD/CNY is likely to consolidate - Westpac

Frances Cheung, Research Analyst at Westpac, explains that CNY has continued to trade on the strong side despite the reported tweak in the CNY fixing formula.

Key Quotes

“We believe it is an adjustment to the weight/coefficient of the counter-cyclical factor (CCF) which is what we have expected. Though the weight could have been reduced to zero temporarily, there is the flexibility to re-deploy the CCF should market conditions warrant it.”

“In recent sessions, the gap between our model (based on basket move) and the actual fixing was sometimes non-trivial compared with average “model error”, suggesting there might still be some impact from factors other than basket move. USD/CNY is likely to consolidate from here, with the 38.2% retracement of 2014 low/2016 high at 6.3964 a key support.”