Bear Market Rally in CNY Almost Over

FT: Renminbi bears rethink currency bets

“The renminbi is controlled and it will be controlled. It’s not a free market; the PBoC is the biggest player and we all know that,” says one senior banker at a mainland institution, who doesn’t expect more dramatic moves this year.

According to a survey by Reuters of non-deliverable forward positions — one way short bets are expressed — investors are still slightly short renminbi, but those positions are less than a quarter of their January peaks.
That tallies with anecdotal reports from bank trading desks and hedge fund brokers.

“There are medium-term funds that went into 2016 with short-China as a relatively core position and it hasn’t performed — however, it probably hasn’t caused enough pain to be restrictive,” says Asher Williams, head of rates and macro sales at Société Générale for Asia-Pacific ex-Japan.

Increasing the value of CNYUSD solves the issue of short-term speculative outflows and depreciation bets, but it makes taking money out of China more attractive because it can buy more overseas assets. If the current economic and outflow trends are not short-term in nature, the PBoC's actions have increased the odds of depreciation over the long-term.

One can't forget about the U.S. dollar. USDCNY is outperforming USDEUR, USDCAD, UDSAUD, USDJPY...and some of those foreign currencies have recovered their losses all the way back to August 2015. CNYUSD is still below its August 2015 levels. Big rallies in most non-USD currencies, but not a big rally in CNYUSD. CNY decouples from USD when USD is strong, and recouples when USD is weak.