China: FX flow data show CNY confidence - TDS

SAFE's February FX Settlement data suggest that renminbi sentiment has not been disrupted by the market volatility or USD buoyancy of February, notes the research team at TDS.

Key Quotes

“Interestingly, forward hedging (net CNY selling), which began to increase after the September-October USD rally, has normalized to near zero, seemingly indifferent to the February surge in market volatility and USD strength that challenged EM.”

“This speaks to the confidence that onshore economic agents continue to have the belief that policy makers will support CNY stability/strength, and are unlikely to allow for increased downside flexibility during periods of volatility.”

“We've maintained since summer that policy makers are pursuing a CNY fixing policy that underpins real (and nominal) effective CNY strength. This still appears to be the modus operandi as the fixing beta collapsed from near 1 before February, to negative (where it remains), suggesting a policy decision to support CNY stability when USD pressure/vol materialized. Lessened susceptibility to financial outflows suggest relative CNY stability against EM Asia, particularly against current account deficit countries highly dependent on FDI and portfolio flows.”