Standard Chartered Research expects CNH to remain strong (and short USD/CNH) near term:
- We expect the elevated onshore and offshore Chinese yuan (CNH) forward points to persist near-term.
- Onshore, year-end balance-sheet management, combined with large upcoming IPO issuance into next week, is keeping liquidity tight.
- In the offshore market, weak Chinese yuan (CNY) appreciation expectations and the CNH discount to onshore spot prevents an easing of liquidity conditions from CNH creation through trade flows.
- Stock Connect also continues to net drain liquidity from the offshore deposit pool.
- Finally, broader market volatility and option hedging flow has pushed the CNH forward points higher.
- Despite all this, we remain short USD-CNH 6M NDF given its attractive carry and look to maintain this trade as long as strong CNY fixings continue to anchor USD-CNY and USD-CNH spot.
The material has been provided by InstaForex Company – www.instaforex.com