China: The PBoC’s revealed CNY preferences – TDS

Sacha Tihanyi, Senior Emerging Markets Strategist at TDS, suggests that with little fanfare, China on Wednesday fixed USDCNY to its highest point in over 5 years, showing comfort in allowing CNY to adjust to levels that may risk causing “consternation” in the market.

Key Quotes

“The evolution of USDCNY vs. the CFETS basket reveals the implicit FX policy stance of China, which is to allow CNY weakness when the broad USD is stable to strengthening, but to depreciate on a broad basket-valuation basis when the USD is broadly weaker, and weaker against CNY.

We believe that this policy stance and our bullish strategic view on USD/Asia helps to underpin our end of year 6.88 target in USDCNY.”