FXStreet (Bali) - Irene Cheung, FX Strategist at ANZ, notes reduced intervention risk in the Chinese Yuan, adding that BOP flows will now be key to dictate currency.
"With PBoC’s latest remark to exit from day-to-day FX market intervention, we think that market forces, supported by BoP flows, will continue to bode well for the CNY."
"Indeed, with the spot now trading very closely to the centre of the daily band (ie 2% away from either side of the band), intervention risk is not prominent. Any central bank action will likely aim to reduce market volatility or to smooth sharp moves more than to change the fundamental, BoP-driven direction of the currency."
"Given strong trade and portfolio flows, we see further downside risk in spot USD/CNY. Our short USD/CNH forward position (initiated on 9 June 2014, with 10 months to maturity) will benefit if the curve flattens amid benign inflation."