Goldman Expect USD/CNY To Remain Rangebound In The Near Term Amid Active PBOC Management

Goldman Sachs note that “CNY shorts appear to be among the very few profitable consensus trades year-to-date. Low vol and lower-for-longer interest rates make CNY a "perfect" funding currency for carry trades, not to mention the positive spot returns.”

• “Over the past month, CNH funding costs eased somewhat as the USD index moved sideways, increasing carry returns of CNY shorts.”
• “Chinese equity dividend payout concentrates in May-Aug, bringing seasonal depreciation pressures on CNY. But the PBOC is likely to maintain tight control to fend off depreciation expectations due to elevated capital outflow pressures.”
• “We estimate $86bn net Chinese capital outflows in April, the largest since 2015, partly due to increased reluctance of exporters to repatriate their earnings.”
• “The CNH/CNY basis widened further on the back of elevated USDCNY counter-cyclical factor.”
• “Onshore forward points remain much lower than offshore forward points, despite the boost to onshore points from the 20% required risk reserves for FX forward sales.”
• “Both indicate continued active currency management by the PBOC.”
• “Overall, we expect the USD/CNY to stay range bound in the near term.”