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5 Jun 2013
Flash: PBoC Governor discusses Yuan devaluation - BBH
FXstreet.com (Barcelona) - Brown Brothers Harriman analysts note that there were some interesting comments by PBOC Governor Zhou overnight, speaking at the 2013 International Monetary Policy Conference.
They begin by noting that of note, Zhou said that China will not competitively depreciate the yuan and he also stated that exports were no longer the main driver of the Chinese economy. They write, “Indeed, exports as a share of GDP peaked near 35% in 2006 and 2007, but have since fallen to stand near 25% in 2012.”
They feel that taking Zhou’s comment about competitive depreciation at face value, it does not necessarily mean that the CNY will continue to strengthen and his comments can be understood as just another public expression of disapproval towards Japan’s policy. They write, “Perhaps they are the equivalent to the US’ “strong dollar policy.””
Further, despite the unfavorable trend, they still hold on to their view that the rate of CNY appreciation is unlikely to continue at this pace, but we are clearly on the defensive with this view. Looking at NDF prices, they feel that markets seem to agree; the 12-month USD/CNY rate rose from 6.20 in early May to 6.25 now.
However, they finish by commenting that the PBOC set the USD/CNY fix at another record low at 6.1735 overnight. They write, “In addition, there was much talk in the media overnight about yuan positions at Chinese financial institutions, a proxy for hot money. Official data showed a surge of RMB294 bln ($48 bln) in April, which follows a Q1 increase of RMB1.22 trln ($196 bln) – this is more than four times the gain seen last year.”
They begin by noting that of note, Zhou said that China will not competitively depreciate the yuan and he also stated that exports were no longer the main driver of the Chinese economy. They write, “Indeed, exports as a share of GDP peaked near 35% in 2006 and 2007, but have since fallen to stand near 25% in 2012.”
They feel that taking Zhou’s comment about competitive depreciation at face value, it does not necessarily mean that the CNY will continue to strengthen and his comments can be understood as just another public expression of disapproval towards Japan’s policy. They write, “Perhaps they are the equivalent to the US’ “strong dollar policy.””
Further, despite the unfavorable trend, they still hold on to their view that the rate of CNY appreciation is unlikely to continue at this pace, but we are clearly on the defensive with this view. Looking at NDF prices, they feel that markets seem to agree; the 12-month USD/CNY rate rose from 6.20 in early May to 6.25 now.
However, they finish by commenting that the PBOC set the USD/CNY fix at another record low at 6.1735 overnight. They write, “In addition, there was much talk in the media overnight about yuan positions at Chinese financial institutions, a proxy for hot money. Official data showed a surge of RMB294 bln ($48 bln) in April, which follows a Q1 increase of RMB1.22 trln ($196 bln) – this is more than four times the gain seen last year.”