17 Feb 2016
USD/CNY: 6.95 by end of the year - TDS
Analysts at TD Securities explained that via a weekend ‘interview’ with Governor Zhou in Caixin, the PBoC has provided the clearest and most transparent effort at communicating its renminbi policy to date.
Key Quotes:
"The emphasis of CNY basket valuation via 3 separate baskets suggests that the current policy of basket stability will be achieved at the expense of increasing USD/CNY volatility, with upside more likely in our view."
"The next major policy step will be to allow flexibility in the CNY basket according to macro data and economic developments, though we expect this only after USD/CNY valuation is brought back into line at more economically consistent levels, with a sufficient risk premium priced-in to arrest capital outflows; we target 6.95 by end of year."
Key Quotes:
"The emphasis of CNY basket valuation via 3 separate baskets suggests that the current policy of basket stability will be achieved at the expense of increasing USD/CNY volatility, with upside more likely in our view."
"The next major policy step will be to allow flexibility in the CNY basket according to macro data and economic developments, though we expect this only after USD/CNY valuation is brought back into line at more economically consistent levels, with a sufficient risk premium priced-in to arrest capital outflows; we target 6.95 by end of year."