ZeroHedge: China Fireworks Continue With Yuan's Biggest 4-Day Rally In 12 Years
Despite the ongoing fireworks, there was some good news for Yuan traders. In a note released overnight, UBS wrote that the CNY has appreciated notably against the USD in the past couple of days - a bit of an understatement - and added that "we see this as playing a bit of catching up following recent USD weakness. CNY has actually depreciated against the basket this year despite strengthening against the USD. Poor liquidity meant CNH moved up more. We now expect CNY to stay strong and not moving beyond 7 against USD this year."This final bit isn't reassuring:
Helped by exchange rate stability and controls on outflows, China's FX reserves will likely stay above $3 trillion in 2017. As USDCNY has stabilized, carry-trade or arbitrage activities by corporate and financial institutions have come down substantially – even through the underlying desire by Chinese corporates and households to diversify into foreign assets remain. Onshore FX purchase activity by households also seems to have calmed down. As a result, we now see China's FX reserves staying above $3 trillion in 2017, despite the fact that its current account surplus will likely shrink.China isn't manipulating the yuan, they're manipulating capital flows, corporate activity and household activity. Let's spin the wheel and see what blows up next...
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