CNY: No turning point – Commerzbank
Yesterday morning, the CNY was able to take advantage of the JPY's strength against the US Dollar and also appreciated significantly against the greenback. At one point, the intraday appreciation reached 0.75%, which would have been the largest daily movement this year. The tide turned after the already much-discussed US GDP figures, but unlike the JPY, the CNY did not have to give up all of its gains, Commerzbank FX strategist Volkmar Baur notes.
CNY is likely to come under pressure again
“Of course, there is always the question of how much of these moves are market-driven or intervention-driven. After all, there were rumors yesterday that Chinese (state) banks were selling US dollars and tightening liquidity in the CNY market to support the currency.”
“One reason for this could be that yesterday the Chinese central bank (PBoC) surprisingly lowered its interest rate on 1-year tenders from 2.5% to 2.3%. Although this can only be seen as a logical move after the 1-week reverse repo rate was cut by 10 basis points at the beginning of the week, it is striking that yesterday's move was larger.”
“PBoC is concerned about the exchange rate. That is why I did not really expect a rate cut in China before the Fed acted. So, it makes sense that the central bank would accompany the rate cut with an intervention in the FX market to avoid associating monetary easing with CNY weakness. In the long run, however, this means that the CNY is likely to come under pressure again.”