USD/CNY: Driven by macro developments - Rabobank

Michael Every, Senior Asia-Pacific Strategist at Rabobank, points out that in terms of USD/CNY there is interesting news that weighs in two different directions as Reuters reports Chinese regulators plan to crack down further on overseas deals.

Key Quotes

“Apparently regulators “are asking companies looking to buy assets overseas to justify terms, including target valuations, deal premiums and financing arrangements… This was particularly the case with companies not seen by the Chinese government as ‘strategic’.” Secondly, there was another report -as yet unconfirmed-- that individual tourist spending over the equivalent of USD150 is now being monitored carefully; and there was internet chatter --again unconfirmed-- about individual spending via the internet on foreign goods being limited by customs to just CNY20,000 per year, representing a big clampdown on the Chinese current account, not the capital account.”

“As I just said, none of those reports are confirmed, and only the first is in the mainstream media. However, the fact that these kinds of stories are floating around at all underlines that for all of the stability we see in CNY and CNH right now, there still appears to be very significant underlying nervousness on China’s part; like ‘Jupiter’, its currency could yet fall rapidly from favour even before any genuine economic reforms are introduced. One should consider that backdrop well when looking at China’s FX reserves data to be released today. Almost certainly, those will show a further rise or stability, but largely due to a weaker USD and falling bond yields, together with capital controls.”