As one of our FX Top Trades published on December 5, 2012, we suggested selling USD/CNH 12M forward to position for a continued appreciation of CNY. The rationale for selling the offshore CNH instead of the non-deliverable USD/CNY forwards was that the offshore CNH discounted the largest depreciation in the forward curve.
We still believe CNY is moderately undervalued and for that reason we still expect it to appreciate on a longer horizon. However, appreciation pressure on CNY is likely to ease in the short run as the government's crackdown on speculative capital inflows appears to have been successful. Moreover, the risk of further weakness in Chinese economy in H2 has increased, which potentially could lead to capital outflow if confidence in the Chinese economy deteriorate substantially. Hence, risks of a temporary correction higher in USD/CNH have, in our view, increased and we have decided to take an early profit of 2.46% (spot ref: 6.1375, forward: 6.2025) on our USD/CNH trade as risk/reward on a three to six month horizon appears less attractive.
To Read the Entire Report Please Click on the pdf File Below.
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USD/CNH: Early Profit On Short Position
Published 07/18/2013, 07:54 AM
Updated 05/14/2017, 06:45 AM
USD/CNH: Early Profit On Short Position
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