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### POV: FURTHER CNY LOWS LOOK.............>

CHINA FX
CHINA FX: ### POV: FURTHER CNY LOWS LOOK INEVITABLE
-Having erased the entirety of the August recovery, further CNY losses and a
firm test of the implied USD/CNY tolerance band at 7.00 look inevitable.
-We wrote of the CNY's 'New Normal' on Oct5, outlining that currency hedging
markets have embraced a weaker CNY for the near- and medium-term future and that
case has strengthened in recent weeks. The Thursday close of onshore FX trading
in China was the weakest since early January 2017, putting both onshore and
offshore Yuan markets on track for a test of the late December 2016 USD/CNY (and
USD/CNH) highs.
-Demand for USD/CNY calls above 7.00 has surged in recent weeks, with some
hedging structures eyeing large call strikes as high as 7.30 as soon as the end
of November. This runs parallel to further commentary suggesting the PBoC could
ease further. Just this morning, MNI interviewed a former policy advisor, who
stated that further RRR cuts are likely. Similarly, markets are poised for USD
strength, with 'pure' USD risk reversals close to the highest level of the year
(see MNI ANALYSIS: Divining the Dollar).

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