Day 3 into new China fix: Calmer market, G3 ccy's within 50 pips range

One liner: Much calmer market but also much smaller trading volume.  CNY onshore is trading close to Fix.  The gap between onshore and offshore has narrowed to 500 pips (vs. 800 pips yesterday). 



After the suspected official intervention in the market yesterday, PBoC held a press conference this morning (headlines above) to further clarify their policy intention.  This has brought back better risk sentiment.  And it seems like PBoC got more buy-in from the market that the change is not all about weakening its currency, at least not a rapid depreciation. 

Today's onshore mid-point came out at 6.4010 which is aligned with previous day close at 6.3858.   CNH is trading about 500 pips  (80 bps) weaker than onshore CNY.  The narrowing gap is also a good sign that the market has found a landing  


What to expect next:

  • Basically with this market driven fixing mechanism, CNY is entering into a new era… a free floating with heavy official intervention.  Expect increased market volatility and hence more hedging demand.  Liability hedging and higher hedge ratio will become the new norm in managing CNY exposure for multinational corporations.  Companies like Lenovo are getting question about the impact of CNY's slide.  (Link)  
  • How much more to go?  Near term: might have seen the peak as the authority is expected to defend their word on the "one-off" nature of this deval.  More depreciation may be too much within a short period of time.  Longer term, perhaps anywhere between 4% - 10%?  !0% is probably the upper tolerance level as it's deemed "nonsense" by the deputy governor of PBoC.   

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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.