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China: Should the RMB be the world’s strongest currency? - ING

FXStreet (Łódź) - Tim Condon from ING believes that the PBOC's strengthening the yuan fix by 0.3% yesterday and by another 0.15% today was a response to the record August trade surplus reported on Monday.

Key quotes

"From the beginning of April through last Friday the average fixing rate was 6.1589 and the PBoC has fixed within 0.01 yuan of it on 94 of 111 days (today’s fixing was outside the range but yesterday’s was not)."

"We consider a return to concerted RMB appreciation unlikely."

"A one-off depreciation of the USDCNY fixing rate, for example back to 6.10, the level that prevailed from the beginning of the year until mid-February, would be more likely, in our view. The politics of China trade lend some credence to this scenario."

"We’re puzzled and holding the view that this week’s weak fixings are a one-off and the post-March fixing rate range persists."

"We attribute the move from a spot premium of 1.66% in late April to the current discount to hot money inflows, which we infer are there from the A-share rally."

"We think the trend is your friend and the discount will widen toward the 2% allowable limit, which if we’re right about the fixing rate would be associated with a 6.03 spot USDCNY."

"We are reviewing our yearend 6.17 USDCNY forecast for downward revision."

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