NEWS
RMB strength unprecedented since October
30 November 2012
Category:
News, Asia, China
By Asia Asset Management
The RMB FX regime is rapidly evolving, says HSBC in its Asia FX Focus, published Thursday (November 29). The extent of the RMB’s strength has been unprecedented since late October, with the US dollar / CNY spot rate almost continuously pressuring the strong side of the daily trading band, it says. Meanwhile, FX forward points have not followed and have in fact moved to the right. In HSBC’s view this reflects:
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A decline in RMB appreciation expectations onshore;
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A more balanced underlying flow picture;
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Ongoing regulatory changes to open up the capital account and deregulate the onshore FX market;
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Less interventionist policy by the People’s Bank of China
These changes have altered the dynamics of the RMB FX market. In particular, these developments have made the FX forward market more reflective of interest rate differentials, which is why FX forward points have remained sticky despite recent RMB strength, it says.
“Looking ahead, we think that the pace of reform will accelerate, with a fully convertible currency likely within five years,” says Paul Mackel, head of Asian FX research. “The RMB will likely continue to face mild cyclical and seasonal appreciation pressures through Q4 2012 and Q1 2013, but we prefer to position for greater convergence of the onshore and offshore curves.”
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