RMB round-up: Stronger post-Fed renminbi fix, China to add seven FTZs, Won-RMB swap line threatened

This week, the PBoC follows the US Federal Reserve’s rate hike by strengthening the dollar, Korea worries THAAD will imperil renminbi swap line, and China reveals plans to create seven new Free Trade Zones (FTZs).

  • By Noah Sin
  • 17 Mar 2017
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Key developments this week:



FX:

  • People’s Bank of China (PBoC) set the onshore RMB (CNY) fix at 6.8873 against the US dollar on Friday, merely 11bp up from a day earlier. On Thursday, PBoC strengthened the fix to follow the US Federal Reserve’s decision to hike rates by 253bp, setting it at 6.8862. PBoC also raised open market operations (OMO) and medium-term lending (MLF) rates by 10bp.   In the spot market, the CNY was trading at 6.9058, 0.13% down as of 5pm, while offshore RMB (CNH) is trading 0.31% down at 6.8917, according to Bloomberg.
  • The dollar index was trading at 100.280, down 0.08%. The Thomson Reuters CNH index (RXY) closed at 94.52 on March 16, 0.6% weaker than at this point last week.
  • The trade-weighted index by CFETS is at 94.23, down 0.05% from previous close. Meanwhile, the BIS basket and special drawing rights (SDR) basket stood at 95.52 and 95.67, down 0.1% and 0.44% from previous close, respectively.
  • Société Générale argued that Fed’s rate hike is not the sole factor behind PBoC’s fix on Thursday, but an important one in terms of determining the timing.                                                                                                                                     “It may not be a very big role, as offering 10bp for every 25bp from the Fed is at best half-hearted help to the RMB. However, the Fed’s action offered the PBoC a timing to make the move, appearing to support the argument that the interbank rate hikes are “following the market”,” sad the French bank’s report.
  • The renminbi will remain stable in 2017, according to China’s premier. Li Keqiang told a press conference on March 14 that China’s foreign exchange is large enough to support import and short-term debt payments, and that China will not depreciate its currency to increase exports.
  • On March 15, Bank of China released its December 2016 cross border RMB index, which tracks the usage of the renminbi internationally. The index fell 22 points to 229 points from the previous month, marking a 47 points drop for the year. The bank attributed the small downturn to a 20% decrease in the cross border usage of the renminbi and a mild drop in renminbi’s circulation overseas.

Bonds:

  • As Bond Connect takes off, Deutsche Bank estimates that inflows of Rmb700-Rmb800bn will drive into China’s interbank bond market (CIBM) over the next five years. Senior strategist Linan Liu said that Bond Connect will bring Rmb300bn to the onshore bond market in 2017 alone.

Regulation:

FTZs:

Hubs:

  • The $56bn Seoul-Beijing swap line came under strain as South Korea prepares to install the US-led Thaad missile system. South Korean officials are worried that China will retaliate by refusing to renew the swap line, which will expire in October 2017, according to local media reports.
  • Hong Kong Monetary Authority (HKMA) followed the Fed’s decision to hike interest rates by increasing its own benchmark by 25bp to 1.25%. The move was expected given that the Hong Kong dollar is pegged to the US dollar. Speaking on March 15, Norman Chan, the chair of HKMA, said it will take time to observe the rate hike’s impact on Hong Kong’s housing market, and asked the public to be prudent in taking out mortgage loans.

  • By Noah Sin
  • 17 Mar 2017

GlobalRMB Panda Bonds league table

Rank Arranger Share % by Volume
1 Bank of China (BOC) 28.15
2 CITIC Securities 21.52
3 China CITIC Bank Corp 9.93
4 China Merchants Bank Co 9.38
5 Industrial and Commercial Bank of China (ICBC) 7.73

Panda Bond Database

Pricing Date Issuer Country Size Rmb (m)
1 13-Oct-17 Global Logistic Properties Singapore 1,000
2 19-Sep-17 Skyworth Digital Holdings China 2,000
3 14-Sep-17 Bank of China (Hong Kong) (BOCHK) China 9,000
4 05-Sep-17 Joy City China 1,000
5 01-Sep-17 Rusal Russian Federation 500

Offshore RMB Bond Top Bookrunners

Rank Bookrunner Share % by Volume
1 Standard Chartered Bank 31.63
2 BNP Paribas 16.57
3 HSBC 14.01
4 JP Morgan 13.39
5 Credit Agricole 11.30

Latest Offshore RMB Bonds

Pricing Date Issuer Country Size Rmb (m)
1 15-Nov-17 Bank of China Paris Branch (BOC Paris) China 1,000
2 02-Nov-17 Hitachi Capital (UK) United Kingdom 500
3 27-Oct-17 Korea Development Bank (KDB) South Korea 1,400
4 19-Oct-17 Commonwealth Bank of Australia (CBA) Australia 1,500
5 11-Oct-17 BMW Finance NV The Netherlands 1,000