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17 Mar 2014
Flash: Yuan weakness to spill into Asia - ANZ
FXStreet (Bali) - According to Khoon Goh, Senior FX Strategist, and Irene Cheung, FX Strategist, both working for ANZ, following the CNY band widening, and with the prospect of further yuan weakness, a more meaningful impact on regional currencies may be seen.
Key Quotes
"Over the weekend, the People’s Bank of China (PBoC) announced that the USD/CNY daily fluctuation band will be widened from the current +/-1% to +/-2%, effective from 17 March 2014. In our view, the band widening will extend the recent weakness in the yuan in the near-term."
"It isn’t just movements in USD/CNY and USD/CNH that need to be watched. There is the potential for a spillover into other Asian currencies as well. To date, the weakness in yuan has not had much of an effect on the rest of USD/Asia. But with the prospect of further yuan weakness, we could start to see a more meaningful impact on regional currencies."
"Though the band widening will not be a major surprise, we think the market will be wary of the risk of an even bigger up-move in USD/CNY. The post 2012 band widening experience suggests scope for more yuan weakness in the near-term, especially with sentiment bearish towards the currency and the risk of unwinding of structured products."
"The upshot will be increased volatility in CNY and CNH. We maintain our long USD/CNH ATMF straddle trade, which should benefit from the higher volatility post band-widening."
Key Quotes
"Over the weekend, the People’s Bank of China (PBoC) announced that the USD/CNY daily fluctuation band will be widened from the current +/-1% to +/-2%, effective from 17 March 2014. In our view, the band widening will extend the recent weakness in the yuan in the near-term."
"It isn’t just movements in USD/CNY and USD/CNH that need to be watched. There is the potential for a spillover into other Asian currencies as well. To date, the weakness in yuan has not had much of an effect on the rest of USD/Asia. But with the prospect of further yuan weakness, we could start to see a more meaningful impact on regional currencies."
"Though the band widening will not be a major surprise, we think the market will be wary of the risk of an even bigger up-move in USD/CNY. The post 2012 band widening experience suggests scope for more yuan weakness in the near-term, especially with sentiment bearish towards the currency and the risk of unwinding of structured products."
"The upshot will be increased volatility in CNY and CNH. We maintain our long USD/CNH ATMF straddle trade, which should benefit from the higher volatility post band-widening."