China: RMB made the nine-month peak, FX reserves further expanded - Natixis

RMB entered gradual appreciation over the past month and reached a nine-month peak (below 6.7 against USD) mainly on the back of a weak USD and domestic economy that realized strong growth in the second quarter, notes Alicia Garcia Herrero, Chief Economist at Natixis.

Key Quotes

“USDCNY and USDCNH both appreciated noticeably against the greenback in July.”

“The forward market is generally optimistic about RMB’s appreciation potentials in the second half and forward rates continued to shift down.”

“China’s FX reserves recorded the rally for the 6th consecutive month to the highest level entering 2017. However, capital outflows continued, despite that the government has taken tighter measures against capital flight.”

“The PBoC paused the OMOs from late June to early July and resumed with 7-day and 14-day (instead of 28-day) reverse repos to provide short-term liquidity.”