USD/CNH down more than 1,000 PIPS in just two days!
USD/CNH has declined more than 1,000 pips in two days, to seven-month low of 6.7223, after PBOC appeared to have undertaken both onshore spot intervention and an offshore funding squeeze in a swift unwind of long USD/CNH positions. The selling-off continues.
- The change to fixing methodology last week also contributes to the sentiment, as it suggests to the market that yuan will be less volatile if dollar rallies in future.
- USD/CNY fixing had been significant and consistent, pointing to limited success of lower fixings that may have frustrated the authorities. The suspected “one-time intervention” could serve as a message to traders “not to short yuan consistently”.
- Preempt the upcoming June FOMC meetings, as well as any ramifications from Moody’s sovereign downgrade, stronger CNY will be helpful as the Chinese authorities continue their deleveraging policy.
- Recent HK-China bonds connect may also encourage authorities to stabilise yuan sentiment.
- USD/CNH could continue to trade lower towards 6.70 if Hibor overnight rate remains high. Overnight Hibor rate jumps 2174bp to 42.815% today.
Fullerton Markets Research Team
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