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13 Jan 2016
China: What's next in store for RMB? - HSBC
FXStreet (Delhi) – Research Team at HSBC, suggests that even as PBoC allows the onshore spot rate to gradually adjust higher, it would periodically intervene to squeeze out excessive speculation in the offshore market and thereby temporarily closing the offshore onshore gap.
Key Quotes
“Since the August fixing reform, it seems that the central bank has been using the offshore RMB market as a medium for price discovery of a near-term market equilibrium level for the USD-RMB exchange rate.
A narrower basis is usually accompanied by some semblance of calmness in both the onshore and offshore markets, but it would not be long before FX policy is relaxed again. We believe authorities have increasingly committed to a more flexible currency regime, as indicated by their recent rhetoric (about the exchange rate playing a bigger role to balance of payments adjustments in 2016), introduction of the CFETS RMB index and the more volatile onshore USD-CNY fixing pattern in the first week of 2016. High volatility will be the theme for 2016 as the RMB transits into a more flexible FX regime.”
Key Quotes
“Since the August fixing reform, it seems that the central bank has been using the offshore RMB market as a medium for price discovery of a near-term market equilibrium level for the USD-RMB exchange rate.
A narrower basis is usually accompanied by some semblance of calmness in both the onshore and offshore markets, but it would not be long before FX policy is relaxed again. We believe authorities have increasingly committed to a more flexible currency regime, as indicated by their recent rhetoric (about the exchange rate playing a bigger role to balance of payments adjustments in 2016), introduction of the CFETS RMB index and the more volatile onshore USD-CNY fixing pattern in the first week of 2016. High volatility will be the theme for 2016 as the RMB transits into a more flexible FX regime.”