Maybank FX Flash - CNY: Soft In the Interim - 13 Apr 2015

CNY: Soft In the Interim

§  Mar trade surplus diminished to a mere USD 3bn from the previous USD60bn. Exports shrank 15.0%y/y in Mar while imports contracted -12.7%.  The latest trade numbers were telling of the weak external demand in the current global environment and bode ill for domestic demand. §  In spite of the lackluster economic data, we do not think the risks of an RRR cut have risen. 5-day average of the 3-month SHIBOR slipped to 4.8% from the average of 4.9% seen in Mar. Hence, we think the current liquidity conditions may allow PBOC to hold its ammunition for a RRR cut. In the meantime, the central bank will continue to rely on a combination of targeted monetary easing tools to better align its monetary policy with fundamentals. §  Looking ahead, we expect CNY to be weak in the days leading up to the GDP release on Wed. However, PBOC may not want a CNY that is too volatile as it gears itself for an entry into IMF’s Special Drawing Rights currency basket. Hence, international pressure could keep USD/CNY bids in check. Expect 6.2350 to cap upticks.