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26 Feb 2014
Flash: PBoC laying the groundwork for USD/CNY band widening - ANZ
FXStreet (Bali) - According to Irene Cheung and Khoon Goh, FX Strategists at ANZ, the PBoC is paving the way for band widening in the coming weeks.
Key Quotes
"In our view, we believe that the PBoC is laying the groundwork for band widening. Last week, we alluded to such a possibility. After Tuesday's price action, we are now more convinced that this is the case."
"The PBoC has been signalling its intention to widen the current +/-1% daily fluctuation band since last year, in an effort to move toward a more market determined currency with more two-way movements."
"The central bank is also keen to promote proactive risk management in the form of FX hedging in the onshore market. However, USD/CNY volatility has been falling since the last band widening in April 2012, and up till last week was at historic lows. This not only meant that it was not appealing to hedge, but one-
way appreciation bets had become popular, leading to the onshore USD/CNY spot rate trading consistently towards the strong side of the band."
Key Quotes
"In our view, we believe that the PBoC is laying the groundwork for band widening. Last week, we alluded to such a possibility. After Tuesday's price action, we are now more convinced that this is the case."
"The PBoC has been signalling its intention to widen the current +/-1% daily fluctuation band since last year, in an effort to move toward a more market determined currency with more two-way movements."
"The central bank is also keen to promote proactive risk management in the form of FX hedging in the onshore market. However, USD/CNY volatility has been falling since the last band widening in April 2012, and up till last week was at historic lows. This not only meant that it was not appealing to hedge, but one-
way appreciation bets had become popular, leading to the onshore USD/CNY spot rate trading consistently towards the strong side of the band."