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Derivatives

Evolution Of The CNY Basket

The People’s Bank of China’s moves in the week of April 14 to broaden the intra-day onshore yuan trading band and lift the short U.S. dollar ban onshore are clearly big steps towards further fx liberalisation. With nearly seven-years of history history, our regression study in this Learning Curve shows that there have been four major structural breaks in the PBoC’s CNY basket since the floating of CNY in July 2005. The latest break at the start of this year shows a further decrease of USD weight in favor of Asian currencies, which was compensated by a flattening of the appreciation trend. USD/CNY volatility will continue to increase as CNY trades more in line with Asian currencies.

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