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China's 'opportunistic' FX policy (and why its selling EUR)

I posted a few moments ago on Deutsche Bank says EUR/USD to revisit year lows soon, forecast 1.05 by year-end

In their analysis at that post, Deutsche Bank referred to China's 'opportunistic' weaker currency policy. What is that? To expand, Alan Ruskin, Deutsche Bank's global co-head of FX research, refers to China FX policy is "opportunistic"' as meaning:

  • As the USD has strengthened, the PBOC has "tended to keep the yuan index broadly steady". (That's since July.)
  • This "adds to the perception of a subtle asymmetry, whereby China targets USD/CNY when the USD is weaker (as per much of H1) and, targets the TWI when the USD is stronger (in recent months)"
  • What this means over time is yuan index goes lower if the USD is weak, while USD/CNY goes higher when the USD is strong

Markets also expect the PBOC to undertake rebalancing of China's FX reserves:

  • "As China loses USD reserves by intervening on USD/China, it rebalances its FX portfolio by selling EUR"

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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