Forex Investment and Currency Trading

Spot USD/CNY has largely traded sideways and is likely to stay within a 6.80-6.85 range in the near term. The announcement of the CNY4 trillion fiscal stimulus helped to stabilize local equity markets briefly. The Shanghai Composite Index rose 8.3% within a few trading days after the stimulus package announcement on November 9 but has since surrendered some of its gains as risk aversion re-emerged and recession fears spread throughout Asian nations. After the slew of weak October macro data, Chinese authorities stepped up on their initiatives to support export growth. The Ministry of Finance announced more export boosting measures, [...]

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Many observers have been pointing out that slowing Chinese growth will likely trigger a policy response, and indeed, monetary policy has already been eased to some extent. Many also perceive a change in FX policy, given the Renminbi has been stable versus the Dollar for some time now. NDF forward markets even price outright CNY depreciation going forward. However, in the global context, the CNY should appreciate to help shrink China’s external surplus. This seems to be happening. In trade weighted terms the CNY remains one of the strongest currencies globally, up about 10% since early August, mainly as the [...]

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1 – 3 Month Outlook – Shifting Priorities

The pace of USD/CNY depreciation – both realised and NDF implied – has continued to moderate. The three month annualised rate of USD/CNY depreciation fell to just 1.0% in late-September, down from 6.6% a month earlier and a peak of close to 17% in March. Similarly, 12 month NDF’s have retreated towards the spot rate, when in March they were anticipating a 12% appreciation. In part, the slowing pace of CNY appreciation reflects shifting priorities on the part of the Chinese authorities as inflation has retreated and
evidence of slowing growth continues to accumulate.
However, [...]

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Market expectation for downside risk to China’s growth prospects intensified last week - partially contributing to a violent rightward shift in the 1-year NDF from discount to the USD to premium levels. The aggressive moves, to an intra-day of 7.12 or over 3% above the spot rate, were exacerbated by thin liquidity and proved to be an aberration from fundamentals amid the ongoing global financial turmoil. However, the move proved excessive and as PBoC set USD/CNY central parity lower for the third consecutive day Tuesday, NDF levels returned to a discount. The rightward shift in the NDF market was likely [...]

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