Stronger Yuan fixings on China downgrade is unlikely to have much effect- ANZ

Analysts at ANZ out with their take on the Yuan implications of Moody’s downgrade of China’s credit ratings.

Key Quotes:

“The authorities have been setting the daily yuan fixings stronger in an attempt to ward off outflow pressures.”

“But the onshore CNY spot rate has been consistently trading weaker than the fix, a sign that dollar demand onshore remains strong.”

“Today's much stronger than expected fixing (0.2% stronger than yesterday's spot closing level even though the dollar was up 0.2% against the basket currencies) is likely an attempt to contain the FX impact from the downgrade.”

“But while capital outflows have been well contained in Q1 this year, there has been a pick-up in April and we expect to see onshore dollar demand rise.”

“The authorities will have to revert to FX intervention if they want to bridge the gap between the spot and fix, as merely setting stronger fixings by itself is unlikely to have much effect.”