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China: The PBOC appreciates USD/CNY fixing - ING

FXStreet (Łódź) - Tim Condon from ING comments on the PBOC's decision to raise the USD/CNY fixing rate by 0.05% today, after lowering it by a total of 0.45% during the last two sessions.

Key quotes

"The economy is adjusting to the deflation of a credit boom and associated property market excess. Adjustment will involve a shift of resources to tradable activities from non-tradable ones and a real exchange rate depreciation."

"We assume that politics – the US Treasury – prevents the PBoC from depreciating the nominal exchange rate so most of the real exchange depreciation will come from falling property prices."

"But appreciating the nominal exchange rate would intensify the downward pressure on property prices. Hence the intuitive appeal of keeping the fixing rate steady."

" We expect hot money inflows to widen the spot discount to the fixing rate toward the 2% allowable limit, which if we’re right about the fixing rate would put the spot rate around 6.03."

"Subject to the significant policy uncertainty we have revised our yearend exchange rate forecast to 6.05 from 6.17."

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