Maybank FX Flash: CNH - Pressured by the Equity Rout - 9 Jul 2015

CNH: Pressured By The Equity Rout

§   

§      

§   USDCNH touched a high of 6.2291 on Wed. The persistent decline in A-shares despite multiple measures unleashed by the Chinese government to support the domestic equity markets is a sign of a real hit in confidence at home and abroad.

§   It is clear that the current bond rout is the main driver of CNH weakness. There are other factors too including the convergence of CNH Hibor and SHIBOR and lower interest rates generally lower demand for yuan based on the uncovered interest rate parity theory.

§   Bearing in mind that this is a reaction to the stock market in a phase of volatility, we expect the stock markets to eventuality stabilize. When calm has returned to the markets, we expect CNH to revert towards the stable CNY.

§