Forex Investment and Currency Trading

1 – 3 Month Outlook – CNY
China’s FX reserves soared by a massive $128.4bn in the first four months of the year as the authorities sought temporarily to stabilise the USD/CNY rate. Latterly, however, the Chinese currency has begun to appreciate once again, breaking below the 6.9 level. This positive trend is expected to continue in the short term.
6 – 12 Month Outlook – CNY Consistent appreciation
The full breakdown of 2007 nominal GDP by expenditure presents a picture of gradual growth rotation towards domestic demand and in particular a greater role for private consumption in the economy’s expansion. Especially [...]

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Spot

Non-convertible. Need a document asset transaction to be able to trade spot. Managed float vs undisclosed basket by CB, band width of +/- 0.5%, to last closing.

NDFS

NDFs typically trade up to one year, but longer NDFs possible up to five years, reasonably liquid and tenors stretch out to 10 years but infrequently traded. Standard size is up to USD 10 million.
Fixing time – 9:15 am – 9:30 am local time (Beijing), two days prior to maturity/value date.
Publication Site – Reuters SAEC. Bloomberg NDFF.
Publication Time – Fixing two days prior to maturity/value date.
Additional Comments – Fixing by PBOC with participation [...]

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USD-CNY
Spot had a central parity fixing of 6.9372 vs. Friday’s close of 6.9420. In May, the Chinese yuan (CNY) gained 0.66% against the USD, faster than the 0.35% appreciation in April, but much slower than the 4.2% appreciation in Q1. Market participants were concerned in April and May that the Chinese authorities may have changed their FX policy substantially, no longer favouring a strong currency. However, the current view is that this was not the case; that the authorities may well have changed, but rather in favour of a strong currency on a trade-weighted basis rather than just against the USD. [...]

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There has been much recent speculation that China has changed its FX policy and no longer wants a fast appreciation of the Chinese yuan (CNY). People who have this view use the recent consolidation in USD-CNY to support their case. However, a more detailed examination of CNY trading patterns against China’s major trading partners suggests that CNY appreciation has accelerated rather than slowed – against other currencies than the USD. This leads us to the view that the People’s Bank of China (PBoC) may now be managing the CNY on a NEER (Nominal Effective Exchange Rate) or trade weighted basis [...]

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