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RMB Biweekly - Is the Tide Turning?

 |  August 30, 2017

Overview 

RMB has been on a depreciating path since the one-off devaluation in July 2015.  Lately, the tide seems to be turning.  Yuan was the best performing Asian Currency against the USD in August. 

CNY’s recent ascend is supported by a series of strong fix onshore and stricter control on capital outflows by the government.

    

Yuan’s outperformance 

Yuan continues to power through in the second half of August.  Onshore CNY has gained 1.8 percent in August so far; one of the best months since the currency revalued in July 2015.  The pair is trading very close to the psychologically important level of 6.60.  After this gives away, the market will eye on 6.50.  Position wise, long CNH position has soared to a three-year high according to a recent Reuter’s poll.   

The basis between offshore CNH and onshore CNY has narrowed to minimal.  And based on this, the main driver of the CNH strength seems to be guided by a string of strong onshore fixes.   On the policy front, officials have intensified the effort to clamp down different channels of capital outflow.  The latest move is the requirement to install facial recognition at ATMs in Hong Kong and Macau.  Onshore residents are allowed to withdraw 100,000 CNY overseas and remit up to USD 50,000 worth of foreign currency overseas each year.  Users of UnionPay cards can withdraw up to 10,000 CNY per day for each card they hold.  To bypass the capital controls, some individuals have been using separate ATMs to withdraw cash. 

 

Regional Tension 

North Korea’s missile launch across Japanese territory is throwing more uncertainty into the mix.  This came one day after a joint military drill by the U.S. and Japan.  The market is expecting rhetoric from South Korea, Japan and the U.S. to turn up a notch.  Yen strengthened one JPY against the dollar in reaction to this news before taking a breather.  The market expects investors to adopt a “home bias” and repatriate overseas funds back home.  JPY stands to benefits from this bias should political tension continue to escalate.  Looking ahead, we may see another maneuver on North Korea’s New Foundation Day on September 9.    

While things heat up in the Korean peninsula, the India-China relationship seems to be normalizing.  Modi is likely to attend the BRICS meeting held in Xiamen early September.  After a month long stand-off in a disputed Himalayan border area, India’s foreign ministry said that it had agreed with China to disengage troops.  Both INR and RMB have benefited from the weaker USD.          

Source: Reuters, Bloomberg

 

The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates. This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.

Foreign exchange transactions can be highly risky, and losses may occur in short periods of time if there is an adverse movement of exchange rates. Exchange rates can be highly volatile and are impacted by numerous economic, political and social factors, as well as supply and demand and governmental intervention, control and adjustments. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Before entering any foreign exchange transaction, you should obtain advice from your own tax, financial, legal and other advisors, and only make investment decisions on the basis of your own objectives, experience and resources. 

 

Contact the FX trading desk at fxtraders@svb.com or 888.313.4029.

See the latest FX information and commentary.

Foreign exchange transactions can be highly risky, and losses may occur in short periods of time if there is an adverse movement of exchange rates. Exchange rates can be highly volatile and are impacted by numerous economic, political and social factors, as well as supply and demand and governmental intervention, control and adjustments. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Before entering any foreign exchange transaction, you should obtain advice from your own tax, financial, legal and other advisors, and only make investment decisions on the basis of your own objectives, experience and resources. Opinions expressed are our opinions as of the date of this content only. The material is based upon information which we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such.

About the Author

Lisa is part of the Global Financial Services Group based in Santa Clara, California . Her primary focus is in advising Asia based PE/VC and corporate clients in currency risk management.

Lisa has 10 years of experience in the FX and derivative markets and has lived and worked in Hong Kong and Singapore. Prior to joining SVB, she worked at Goldman Sachs and Barclays Capital in various sales capacities covering a range of institutional accounts, from corporate clients, to PE firms as well as regional private banks. Her experience includes treasury risk management, structured investment products, hedging strategies in cross-border acquisitions, and structured financing solutions. Lisa started her career at KPMG San Francisco in the Assurance Practice. She holds a bachelor’s degree in Economics from University of California, Berkeley.
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