CNY has been resilient – Westpac

The CNY has been resilient amid general Asian currency weakness in the past week, despite being fixed weaker than market expectations in some recent sessions, notes Frances Cheung, Research Analyst at Westpac.

Key Quotes

“The 23.6% retracement (from 2014 low/2016 high) of 6.2720 remains a key support. While the PBoC reiterated it would allow market forces to play a bigger role, we continue to see adjusting the weight/coefficient on the counter-cyclical factor (CCF) as an option – or more precisely an ongoing exercise – should market movement warrant it. Market sentiment may reverse if there is sign that the CNY strength is affecting trade performance.”

“CNH forward points have hovered at low levels, partly because of the RMB sentiment but more importantly the offshore CNH liquidity stays fairly supportive. If Southbound flows (from mainland China to Hong Kong) via Stock Connect continue to be strong, CNH points may stay low. Liquidity squeeze is likely to be avoided running into the Chinese New Year.”