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18 Dec 2015
USD/CNY: Likely to hold on to 6.4500-6.5100 range with bullish bias – MUFG
FXStreet (Delhi) – Research Team at MUFG, suggests that day to day, PBOC/SAFE appear to be behaving as if the problem is offshore speculation pushing up USD/CNH and pulling up USD/CNY in turn.
Key Quotes
“What this ignores is the ongoing onshore capital outflows, amply indicated by November reserves loss and now banking system net purchases. This is a dangerous game and inexperienced and sometimes wrongheaded exchange rate management. As a consequence, we can no longer rule out 7 as a risk.”
“The danger, however, is that moving rapidly higher could unhinge domestic confidence further, risking the capital flight we believe is somewhere Chinese authorities definitely do not want to go. Even with USD3+trn of reserves you cannot ultimately win against your own domestic savers. If market pressures come unhinged, we find it easier to believe in a return of capital controls before we see a 7.”
Key Quotes
“What this ignores is the ongoing onshore capital outflows, amply indicated by November reserves loss and now banking system net purchases. This is a dangerous game and inexperienced and sometimes wrongheaded exchange rate management. As a consequence, we can no longer rule out 7 as a risk.”
“The danger, however, is that moving rapidly higher could unhinge domestic confidence further, risking the capital flight we believe is somewhere Chinese authorities definitely do not want to go. Even with USD3+trn of reserves you cannot ultimately win against your own domestic savers. If market pressures come unhinged, we find it easier to believe in a return of capital controls before we see a 7.”