China poised to widen currency band, says Nomura
|01/07/2018||Posted by admin under 南京夜网||
China is unlikely to engage directly in the so-called currency wars, but may relax its controls on the yuan’s movements against the US dollar to adjust for imported disinflation, says Nomura.
The investment bank suggests in a note that recent reports in China point to a widening of the band within which the yuan is allowed to float.
Such a move could be promoted as another step in the country’s move towards full financial market integration, Nomura suggests, while maintaining the yuan’s competitiveness in the face of monetary easing around the world.
Under current settings, the currency is allowed to depreciate or appreciate by 2 per cent around a daily fixed spot price against the greenback before the People’s Bank of China intervenes directly by either buying or selling the US currency.
This band could be widened to 3 per cent either side of the fixed price, Nomura said.
Its comments reflect pressure on the currency from last year’s declines in the prices of oil and other commodities. These falls have helped drive the value of imports down nearly 20 per cent in January, putting downward pressure on the currency, despite a widening trade surplus.
The value of exports also declined, by 3.3 per cent, reflecting weak global demand, a loss of competitiveness, and a crackdown by Beijing on fake invoicing on shipments to Hong Kong.
“It seems that sharp decline in commodity prices, weak domestic demand and weak external demand, reflected in processing imports, all played a role in the decline in imports,” UBS’s chief China economist Wang Tao told Bloomberg.
“Trade data again creates a dilemma for the exchange rate. A record trade surplus is supposed to add appreciation pressure, but declining exports would say otherwise.”
According to Sunday’s data, the value of crude oil imports to China fell 41.8 per cent from a year earlier, while iron ore imports dropped 50.3 per cent and coal plummeted 61.8 per cent.
Quantities of the commodities declined as well. Imports declined from all major trade partners, including Australia, the European Union and the US.
The Australia dollar reacted to the weak data, opening about US0.40 cents lower in local trade, at US77.66 cents, after hitting US78.05 cents overnight.
China last widened the yuan’s trading band against the US dollar in March last year, from plus or minus 1 per cent to the current 2 per cent.
Nomura stresses that it does not expect an imminent change in China’s foreign exchange policy, saying signals from the PBoC normally emerge about three months prior to any shift.
This chimes with a report by Australia and New Zealand Banking Group on Monday, which attributes recent depreciation of the yuan against the greenback to buying by Chinese companies covering short positions that bet on a rising local currency
“Yuan exchange rate uncertainty will continue to force the corporates to unwind their speculative positions that bet on the yuan’s steady appreciation,” ANZ said.
“However, it is also not one of China’s interest to let yuan depreciate sharply, as it will endanger the financial stability,” it said.
“We don’t expect band widening any time soon, especially when the onshore spot rate is trading close to the weak side of the band.”
In Sydney on Monday, Reserve Bank of Australia governor Glenn Stevens welcomed the launch of a Bank of China currency trading platform as further proof of the country’s opening up of the capital account.
“The Chinese authorities have indicated that they intend to continue yuan internationalisation and capital account liberalisation in the coming years,” he said.
“As a result, the opportunities for Australian and Chinese investors to invest in each other’s financial markets could grow significantly in the coming years.
“By increasing their familiarity with the yuan as an international transaction currency, local financial institutions, investors and firms are likely to be better placed to take advantage of these future opportunities as they arise.”
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