CNY strength over? – UOB

Researchers at UOB Group assessed the recent price action around the Chinese Yuan.

Key Quotes

“Over the past 48 hours, the CNY weakened dramatically against the USD from 6.25 to 6.32. A whole list of factors was responsible for this rebound. They ranged from tentative stabilization in US Treasuries yield curve, risk aversion triggering sell-off in CNY and Asian currencies and various news reports suggesting that Chinese authorities may have allowed the resumption of limited investor capital outflow”.

“From a currency markets perspective, various signs like renewed widening of CNH vs. CNY spread, return of risk reversal bias for USD calls (CNY puts) in the options market, renewed widening of USD/CNY forward premium all suggest that investors have started to hedge or position for renewed CNY weakness yet again”.

“Overall, we deem it premature to extrapolate and conclude that CNY strength is over and that a new weakening trend has started. Rather, this may well be yet another attempt by CNY to consolidate. Similarly, our technical analysis of USD/CNH suggests that while there is ample room for the spot rally to extend to as high as the 6.40 handle, it is premature to expect a major bullish reversal”.