Forex Investment and Currency Trading

The PBoC’s Monetary Policy Report was released earlier today. The report indicated that the central bank will “improve the yuan exchange rate mechanism” moving forward based on capital flows and fluctuations in the major currencies. This apparently establishes a new set of criteria for determining how and when the CNY will move. At the very least, this suggests that the authorities are becoming more sensitive to the concerns that many countries are having with regard to domestic currency appreciation versus the CNY; as the USD falls and the CNY has operated under a de facto peg over the past year, [...]

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The Chinese renminbi has traded in a range of narrow range of 6.8135-6.8527 per U.S. dollar over the last six months – except for a one-week period at the beginning of January, when it spiked to a peak of 6.8870. This spike is notable because it appears to have been a test by the Chinese authorities to international reaction to a weaker renminbi. The international response was forceful and the People’s Bank of China (PBOC) soon pushed the currency back into its previous narrow trading range against the U.S. dollar. While one cannot rule out further tests by the PBOC [...]

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Mexico: Uncertainty for the MXN outlook continues to weigh on investor sentiment. Deputy Finance Minister Werner commented that the MXN market has become “fertile ground for speculative activities” echoing comments made by Banxico Governor Ortiz earlier this week. Banxico did not intervene in FX markets yesterday (note the central bank issues a brief statement after market close
confirming FX intervention), but markets appear concerned as every move down in USD-MXN prompts discussion of possible central bank action. Some remain skeptical of the central bank’s ability to halt the MXN slide and express that view via a long BRL-MXN recommendation. The daily [...]

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USD/CNY has traded within a tight range thus far in January and it appears that the authorities prefer to maintain currency stability ahead of the week-long Lunar New Year holidays beginning January 26. The USD/CNY central parity was consistently set below 6.84 with the highest at 6.8399 on January 14. Trading activities will likely wind down as the holidays approach and the PBoC is unlikely to cut rates
further this month. With most of the December data announced, the only key data left are December CPI and 4Q GDP. While inflation is expected to decline further to 1.6% yoy, fears of [...]

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