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20 Mar 2014
Downside risks for AUD from China – RBS
FXStreet (Guatemala) - Strategists at RBS explained the recent weakness in CNY appears to halve helped slow FX reserves accumulation, and the likelihood is that this has accelerated further as CNY has fallen more recently.
“Basically, China appears to have gained traction with its FX action; while it may have begun with increased intervention to weaken CNY, more recent falls in CNY have taken on a life of their own with less speculative capital inflow and a squeeze in some existing CNY long positions. This may now be tightening monetary conditions”.
“Onshore Chinese swap rates have begun to rise in the last week, reversing some of the fall since mid-Feb”.
“Some tightening in domestic monetary conditions along with slowing economic activity and a weaker property market suggests downside risk for the AUD”.
“Basically, China appears to have gained traction with its FX action; while it may have begun with increased intervention to weaken CNY, more recent falls in CNY have taken on a life of their own with less speculative capital inflow and a squeeze in some existing CNY long positions. This may now be tightening monetary conditions”.
“Onshore Chinese swap rates have begun to rise in the last week, reversing some of the fall since mid-Feb”.
“Some tightening in domestic monetary conditions along with slowing economic activity and a weaker property market suggests downside risk for the AUD”.