CNY Follow-Up - Clarifications And Confusion

Published 08/12/2015, 08:29 AM
Updated 05/14/2017, 06:45 AM

There is a lot of confusion about the reform of the Chinese currency system. In this short Q&A we aim to clarify what China has actually announced and what are the implications.

What is clear is that China has changed its fixing methodology. This implies that the daily fixing will be based on the previous day' closing price. However, uncertainty about how much PBoC will allow the spot to move around is high.

Our base case is that PBoC will intervene in USD/CNY to dampen CNY depreciation. CNH/CNY spread is set to remain high short-term on heightened risk premium but fall over time on arbitrage flows. Nordic corporates should use CNH rather than CNY NDF versus local currencies to hedge FX risk.

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