6 Apr 2015
USD/CNY bullish in the longer run – BAML
FXStreet (Edinburgh) - In the view of analysts at BAML, the pair could reach the area around 6.36 towards year-end.
Key Quotes
“The PBoC, whether acknowledging or not, probably intervened in the FX market by selling USD recently, leading to a sharp fall in USDCNY, and helped erase its gain since mid-January”.
“USDCNH followed suit. The price action suggests the PBoC still aims to increase two-way volatility, leaving the market no choice but to bring forward the expected timing of potential band widening”.
“That said, the PBoC’s recent reactions seem to signal that it is more comfortable having lower rates than a weaker currency”.
“This probably means RRR cuts are more likely than a band widening in the near term”.
“PBoC Deputy Governor Yi Gang’s recent comment that he sees no urgent need to widen the band is consistent with this view”.
Should PBoC’s intervention continue, a further selloff in USDCNY and USDCNH will likely be triggered, as speculators have been significantly short RMB”.
“That said, we maintain our long-term bullish view given the policy and economic divergence, and expect USDCNY to end the year at 6.36”.
Key Quotes
“The PBoC, whether acknowledging or not, probably intervened in the FX market by selling USD recently, leading to a sharp fall in USDCNY, and helped erase its gain since mid-January”.
“USDCNH followed suit. The price action suggests the PBoC still aims to increase two-way volatility, leaving the market no choice but to bring forward the expected timing of potential band widening”.
“That said, the PBoC’s recent reactions seem to signal that it is more comfortable having lower rates than a weaker currency”.
“This probably means RRR cuts are more likely than a band widening in the near term”.
“PBoC Deputy Governor Yi Gang’s recent comment that he sees no urgent need to widen the band is consistent with this view”.
Should PBoC’s intervention continue, a further selloff in USDCNY and USDCNH will likely be triggered, as speculators have been significantly short RMB”.
“That said, we maintain our long-term bullish view given the policy and economic divergence, and expect USDCNY to end the year at 6.36”.