Chinese Currency Collapses To 18-Month Lows; Nears PBOC Limits
Submitted by Tyler Durden on 04/30/2014 22:32 -0400
After widening its tolerance for real world volatility mid-March, the PBOC has faced a daily battering of USD buyers and CNY sellers which have driven the Chinese currency to its weakest level in over 18 months. However, things are starting to become problematic... while call buying and hedging is exploding - as carry traders and local specs rush to cover exposures, Bloomberg notes that Morgan Stanley fears as the yuan approaches the lower end of PBOC’s permissible daily trading range, anticipated intervention to defend band could put other currencies under selling pressure. The last time - Summer 2012 - that the PBOC defended its currency, EUR came under selling pressure but as Morgan Stanley notes, “In the very unlikely case” of PBOC not defending band, FX volatility would surge globally with implications going beyond RMB as markets would assume China’s economic problems might be significant... whocouldanode?
The Yuan is now trading 1.8% below (above on the chart) its fixing and near the 2% band limit the PBOC expanded to in March...
Bloomberg reports that as yuan approaches lower end of PBOC’s permissible daily trading range, anticipated intervention to defend band could put currencies under selling pressure, helping USD, Morgan Stanley says in note.
CNY at 6.2659 now, trading 1.8% below today’s fixing at 6.1580; PBOC widened daily trading band to 2% on either side of fixing in March...When a similar situation occurred in June-July 2012, PBOC used $80b of reserves to defend band and, as this operation required China’s reserve managers to sell currencies to boost USD intervention fund, EUR came under selling pressure then, MS says in client note today...MS says it is more likely that China will seek controlled devaluation, pushing USD/CNY fixing higher, allowing CNY to drift lower within the band; this would be USD-positiveBut “In the very unlikely case” of PBOC not defending band, FX volatility would surge globally with implications going beyond RMB; markets would assume China’s economic problems might be significant, putting commodity currencies at forefront of global selling interests
What could given them that idea!!??
AsiaPac Double 'Data' Whammy: China PMI Misses Following Aussie PMI Collapse
Submitted by Tyler Durden on 04/30/2014 21:07 -0400
On the heels of disappointing March data in China for Services and Manufacturing,China's "official" manufacturing PMI saw its lowest 'April' print on record(typically a period of renaissance post-New Year data snafus) missing expectations for the first time in 2014 and just marginally above last month's data (50.4, exp. 50.5, prev. 50.3) China is still in Schrodinger-land with "official' data (biased towards larger SOEs) in very modest expansion and Markit (weighted towards smaller - more realistic - entities) in considerable contraction. That China disappointment follows earlier data which saw Aussie PMI collapsed over 3 points in April to its lowest in 9 months with the deterioration broad-based across the key sub-components. As Goldman notes, production is now at its weakest in a year, employment remains in contraction and, most worryingly, new orders printed their largest contraction in 13 months. This is the 6th month in a row of Aussie manufacturing contraction.
This was China's lowest April Manufacturing PMI print on record...
Missing expectations... for the first time in 2014
But leaving the official data in modest expansion and Markit firmly in contraction...
Aussie PMI at its lowest in 9 months as all the key sub-components collapse...
As Goldman concluded - rather ominously,
...manufacturing conditions remain very challenging despite the considerable monetary policy easing by the RBA. Moreover, with the recent appreciation in the AUD now adding to the headwinds facing this sector, ameaningful recovery in manufacturing sector activity still seems some way away.