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CNY: Priming for Adjustments
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§ The
State Council said the yuan trading band could be widened. This was in an
opinion article issued this morning (Fri, 24 Jul) that was focused on
supporting the trade sector. There were little other details on yuan
measures apart from ensuring a stable exchange rate as well as more hedging
products for corporates to hedge against foreign exchange risks.
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§ Talks
of band-widening spurred the USDCNH on a rally towards a high of 6.2240. This
pair is now above the 50-DMA at 6.2120. CNH discount to CNY widened to
around 150pips as we write.
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§ Timing
is always the tricky question. We do not expect band widening to take too long.
We expect PBOC to widen the band within the next three months and we are
biased for it to happen sooner rather than later. USDCNY to head towards 6.28
before easing back towards 6.26 in the last quarter as dollar softens and
strong seasonal factors that will underpin the yuan at year end.
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