PBoC set USD-CNY fixing rate at 6.3986 this morning, compared with yesterday's closing rate of 6.4053. It is reported that China's central bank intervened into the FX forward market intensively yesterday. One-year outright USD-CNY forward dropped sharply to 6.5279 at end of yesterday's trading session, from 6.5878 in the previous day, notes Commerzbank.
The intervention in the forward market could able to achieve two goal in the short term as Commerzbank pointed out:
- first, it will contain the expectation of CNY deprecation in the forward market
- second, the central bank will not need to sell its USD reserves immediately
However, the Commerzbank foresees the following developments as a side effect of this operation:
- first, USD-CNY spot rate could spike up if the central bank is absent in the spot market
- second, when the FX forward matures, the CNY exchange rate will be under further pressure to depreciate
By the end of the day, the root issue is still how to manage market expectations.
