Back
27 Nov 2014
CNY price actions attributed to rate cut? - BTMU
FXStreet (Guatemala) - Lee Hardman, Currency Analyst at Bank of Tokyo-Mitsubishi UFJ explained that they observed stronger onshore bidding this week, stronger than they had anticipated.
“Perhaps more interesting is the much wider trading range observed onshore. As a consequence 1-month implied vols have been bid up though 1-year vols remain subdued”.
“To respect the wider trading range and strength of the onshore bid, we raise the top end of our range up by 200pips this week; we'll wait and see if in the future volatility is only associated with a weaker renminbi”.
“We are reluctant to attribute this week's price action as a reaction to last Friday's surprise rate cut, because our experience suggests CNY is not an interest-rate currency (in any case onshore short rates have not moved much)”.
“The renminbi should be affected, however, by longer-run growth concerns, and if the rate cut is a reaction to data yet unseen, early November economic indications may prove weak.
“Perhaps more interesting is the much wider trading range observed onshore. As a consequence 1-month implied vols have been bid up though 1-year vols remain subdued”.
“To respect the wider trading range and strength of the onshore bid, we raise the top end of our range up by 200pips this week; we'll wait and see if in the future volatility is only associated with a weaker renminbi”.
“We are reluctant to attribute this week's price action as a reaction to last Friday's surprise rate cut, because our experience suggests CNY is not an interest-rate currency (in any case onshore short rates have not moved much)”.
“The renminbi should be affected, however, by longer-run growth concerns, and if the rate cut is a reaction to data yet unseen, early November economic indications may prove weak.