BNP says that it is now riskier to short the yuan

Author: Justin Low | Category: News

According to Ji Tianhe, BNP Paribas' China rates and FX strategist

Ji's argument of course is referring to the surge in offshore yuan forward points that was highlighted earlier here. He says that the spike there is making it riskier to short the yuan as it implies higher borrowing costs and increasing volatility in funding.

However, he notes that the impact of the spike in forward points will be limited on cross-border yuan flows from the real economy and says that it will turn out to be temporary.

Looking at the forward points today, tom-next jumped by almost 15 points before correcting itself to settle near 0 points (where it usually trades around). But the spike-then-correction in tom-next points aren't exactly uncommon as it tends to happen from time to time in the market.

But of note is the 12-months/1-year USD/CNH forwards which I highlighted earlier. That continues to spike higher and is now at 820 points - on course for its biggest one-day jump since November 2011:

Temporary or not, the spike here is at least warranting that there is reason to believe that we're close to a USD/CNH ceiling for the moment. At worst, as mentioned earlier, this could be the turning point for the pair in the near-term.

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