TD Securities: China Will Be Increasingly Wary Of Further CNY Appreciation

TD Securities note that "CNY strengthened to multi-year highs vs. USD and on a trade-weighted basis causing a high degree of consternation among China's policymakers. We think China will be increasingly wary of further CNY appreciation especially on a trade weighted basis and may open the door slightly more to outflows. Measures to slow the CNY's ascent range from verbal intervention, raising the reserve ratio on FI's FX holdings, selling USD bonds to easing QDII restrictions. Going forward, China may be more active in terms of FX intervention, having picked up the pace of USD buying though we think they may still prefer more subtle measures. We think a ceiling of around 98 on the CFETS index will be aimed at, with preference to move back into a 96-97 range, where it has been for most of this year."