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24 Apr 2013
Forex Flash: Chinese data continues to miss forecasts - BBH
FXstreet.com (Barcelona) - Brown Brothers Harriman analysts note that yesterday, HSBC China April flash PMI came in at 50.5 vs. expectations for 51.5 and this reading had taken on a bit more importance in light of the weak China Q1 data reported since the March PMI reports.
They feel that given the downside risks to the economy, they downplay risks of any tightening in the short term, except for targeted sectors such as real estate and some types of lending. Moreover, it also reduces the risk of imminent CNY band widening. They write, “We do not think the policymakers will take any significant reform measures in FX until the economic outlook becomes clearer. We also remain concerned about the potential negative impact stemming from the continued spread of the bird flu virus. USD/CNY continues edge higher this week after making new lows for this move last week. If yen weakness continues, we think it will be hard for the PBOC to keep USD/CNY near the lows.” Instead, they think that the authorities could move this pair higher in response to generalized currency weakness of its export competitors. China officials have expressed a desire to keep the REER broadly stable this year. With inflation running high and the currencies of its major trading partners weakening, they think this would justify a higher USD/CNY ahead.
They feel that given the downside risks to the economy, they downplay risks of any tightening in the short term, except for targeted sectors such as real estate and some types of lending. Moreover, it also reduces the risk of imminent CNY band widening. They write, “We do not think the policymakers will take any significant reform measures in FX until the economic outlook becomes clearer. We also remain concerned about the potential negative impact stemming from the continued spread of the bird flu virus. USD/CNY continues edge higher this week after making new lows for this move last week. If yen weakness continues, we think it will be hard for the PBOC to keep USD/CNY near the lows.” Instead, they think that the authorities could move this pair higher in response to generalized currency weakness of its export competitors. China officials have expressed a desire to keep the REER broadly stable this year. With inflation running high and the currencies of its major trading partners weakening, they think this would justify a higher USD/CNY ahead.