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Foreign Exchange

Buy one month yuan NDFs on appreciation bet, says StanChart

Standard Chartered FX strategists are recommending investors sell one-month U.S. dollar/Chinese yuan non-deliverable forwards with an outright entry of CNY6.475 to take advantage of underpriced CNY appreciation at the short-dated end of the curve.

Standard Chartered fx strategists are recommending investors sell one-month U.S. dollar/Chinese yuan non-deliverable forwards with an outright entry of CNY6.475 to take advantage of underpriced CNY appreciation at the short-dated end of the curve.

"The 1M NDF trades close to the same level as it did on 21 April whilst the [People’s Bank of China]’s USD-CNY daily fix is 0.5% lower than it was then," according to a strategy report released by the firm this week. Strategists say uncertainty in the market over global risk appetite has cheapened the trades across the curve, but mostly in the shorter dates.

The one-month tenor is also attractive as strategists believe PBoC is likely to announce a 0.5% to 1% widening of the trading band in coming weeks. "The CNY appreciation has a strategic medium-term role in helping rebalance the Chinese economy and potentially ultimately giving the PBoC better control over domestic monetary conditions," the report said. "A widening of the USD-CNY trading band will also be welcomed internationally as a new step toward greater flexibility in the Chinese FX trading regime."

The report notes that the last time the trading band was widened on Friday, May 18, 2007, one-month non-deliverable forwards fell from CNY7.641 at Thursday’s close to CNY7.614 the following Tuesday.

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