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20 Feb 2014
Flash: USD/CNY trading band in 2014 to widen in an orderly manner - Nomura
FXStreet (Bali) - On the following note to clients, Craig Chan and Wee Choon Teo, FX Strategist at Nomura, outline the explicit comments by the PBOC on a potential RMB band widening.
Key Quotes
"The People's Bank of China (PBOC) posted a statement on its website that summarised the decisions from a conference on the development of cross-border renminbi (RMB) business. The conference was held from 17 to 18 February and attended by PBOC Deputy Governor Hu Xiaolian, who also set the group‟s directions for 2014."
"The statement highlighted the focus on RMB capital account convertibility and liberalisation of financial markets, but it also stressed the importance of an orderly expansion of the USD/CNY trading band in 2014. This is a significant statement in our view, given that the PBOC not only rarely posts explicit comments on potential band widening in its website (the last time was a 28 November article by Governor Zhou), but this may be the first time that the central bank has indicated an explicit timeframe. These comments and possible near-term implications of a band widening may also explain the recent bid in onshore spot USD/CNY with the deviation from the daily fix last at -55bp, which is similar to levels we saw back in November/December 2013 when the possibility of band widening was also in focus."
"In our view, a possible timeframe for a band widening in the near term may be before the
5 March National People‟s Congress meeting or before the significant events/economic
data in April. In April, there is US President Obama‟s visit to Asia (possibly visiting China
in late April), the US Treasury FX report (likely on 15 April), Q1 FX reserves (10-15 April)
that could surpass USD4.0trn, the 11-13 April IMF/World Bank spring meeting and the
Strategic and Economic Dialogue (likely in early May)."
Key Quotes
"The People's Bank of China (PBOC) posted a statement on its website that summarised the decisions from a conference on the development of cross-border renminbi (RMB) business. The conference was held from 17 to 18 February and attended by PBOC Deputy Governor Hu Xiaolian, who also set the group‟s directions for 2014."
"The statement highlighted the focus on RMB capital account convertibility and liberalisation of financial markets, but it also stressed the importance of an orderly expansion of the USD/CNY trading band in 2014. This is a significant statement in our view, given that the PBOC not only rarely posts explicit comments on potential band widening in its website (the last time was a 28 November article by Governor Zhou), but this may be the first time that the central bank has indicated an explicit timeframe. These comments and possible near-term implications of a band widening may also explain the recent bid in onshore spot USD/CNY with the deviation from the daily fix last at -55bp, which is similar to levels we saw back in November/December 2013 when the possibility of band widening was also in focus."
"In our view, a possible timeframe for a band widening in the near term may be before the
5 March National People‟s Congress meeting or before the significant events/economic
data in April. In April, there is US President Obama‟s visit to Asia (possibly visiting China
in late April), the US Treasury FX report (likely on 15 April), Q1 FX reserves (10-15 April)
that could surpass USD4.0trn, the 11-13 April IMF/World Bank spring meeting and the
Strategic and Economic Dialogue (likely in early May)."