AllianceBernstein said earlier in the year that the People’s Bank of China (PBOC) altered the management of the RMB appreciation path slightly by setting the daily fix for the RMB at lower levels against the US dollar.
AllianceBernstein director of Asia Pacific fixed income Hayden Briscoe said after reaching almost 6.09RMB to the US dollar in January 2014, the daily fix for the RMB was weakened to 6.17RMB in May.
“After moving to weaken the RMB in January, the PBOC announced in mid-March that the trading band would widen from +/-1 per cent to +/-2 per cent,” said Mr Briscoe.
“We regard this action as encouraging, as it supports policy in the direction of a more market-determined exchange-rate regime for the currency.”
Mr Briscoe said the PBOC had most likely become uncomfortable with the market’s perception of the RMB’s appreciation as a one-way trade – “an attitude that policy makers feared could lead to systemic risks”.
“There was increasing evidence, for example, that corporates and investors were purchasing RMB structured products which potentially involved excessive leverage or the incorrect reporting of trade data,” said Mr Briscoe.
“The RMB’s price reversal this year, combined with a regulatory clampdown, has successfully ended the trade in structured RMB products for now.”
Mr Briscoe said AllianceBernstein does not believe the RMB’s recent depreciation is the start of a broader trend, and “expects its appreciation to resume”.
“The currency does not appear to us to be overvalued or at fair value, contrary to what some commentators have claimed,” said Mr Briscoe.
He said the evidence shows China has not changed its stance on currency so the RMB’s performance should therefore be flat to positive on a 12-month daily basis.
“A desire for the PBOC to maintain an appreciating currency is likely to result in an end-of-year rally in the RMB,” said Mr Briscoe.
