USD/CNY is likely to trade in a range – Westpac

The CNY weakened mildly over the past week but stayed in a range as SAFE clarified its earlier notice on forward FX settlement that was announced back in February, points out Frances Cheung, Research Analyst at Westpac.

Key Quotes

“Corporates which have foreign exchange exposure but no actual FX transaction can choose balance settlement for their forward hedging. SAFE emphasized these hedging activities should be based on real underlying need, which can be current or capital account items. This provides an avenue for corporates to hedge against FX exposure, which is in line with the policy direction to facilitate better management of FX risk.”

“We continue to monitor the forex settlement data in both spot and forward to gauge inflow-outflow balance. USD/CNY is likely to trade in a range with a mild upward bias in the near term. Foreign flows into CNY bonds should stay supportive, given desire for portfolio diversification.”