Top trade idea for October 14th, 2016 – USD/CNH
Topic: Top trade idea for October 14th, 2016 – USD/CNH
As the USD rises authorities in China are faced with a growing problem. Although they are allowing a gentle depreciation of the CNY against the USD, it is not keeping pace with USD gains. This showed up in trade data this week, where exports fell off a cliff. This appreciation by proxy puts pressure on the People’s Bank of China to force further CNY falls (USD/CNH rises).
One of the problems of pegging a currency is becoming subject to another central bank’s monetary policy. Since late April, the USD index is up 6.5%. The problem for the PBoC is that over the same period the CNY has only fallen 3.8% against the USD. Naturally, this means CNY is up against the EUR and the JPY.
Even without further USD gains, USD/CNH could rise more. Any further USD strength from here increases the likelihood of USD/CNH gains, as the PBoC tries to maintain levels against other major currencies.