FX

The People's Bank of China signalled it was not done tinkering with its FX policy framework on July 12, when it made a proposal to expand the RMB daily trading band. Analysts agree the move is a step forward, but add that it contradicts the PBoC's recent push for increased control of the currency.

Asset manager Pimco said the launch of Bond Connect addressed important concerns by foreign investors, but added that the outlook for the RMB remained somewhat bearish.

The offshore renminbi (CNH) reached its strongest point against the dollar since the start of the year on Thursday, despite China’s sovereign rating downgrade last week. Analysts say the sharp turn reflects Chinese regulators’ determination to keep the currency from falling ahead of renewed pressure from external factors.

There was little understanding among market watchers to news that the Chinese central bank is planning to introduce a counter-cyclical component to the calculation of the daily fix of the onshore RMB (CNY). Analysts say the move contradicts earlier statements from the PBoC about giving markets more say in the exchange rate.

A new formula to determine the daily renminbi fix could be a prelude to more exchange rate policy reform from China, said HSBC.

The RMB has remained stable in the currency markets so far this year, but the rest of 2017 may turn out to be more rocky depending on policy developments in the US, according to financial industry experts.

The friendly meeting between US president Donald Trump and his Chinese counterpart Xi Jinping last week has ushered in warmer relations, with Trump stating on April 12 that the US Treasury will not label China a currency manipulator. Meanwhile, the two sides are working on a framework for greater market access to be delivered in just over three months.

The first meeting between new US president Donald Trump and his Chinese counterpart Xi Jinping starting Thursday could prove fateful for the bilateral relationship and China's renminbi, with the outlook remaining cloudy on what the US president's next moves might be.

The Hong Kong Stock Exchange (HKEX) launched USDCNH options on March 20, the first currency options to trade on the exchange. Together with HKEX’s USDCNH futures contract, the new product will give investors an alternative in managing renminbi exposure.

A foreign institutional investor completed its first hedging transaction in the onshore FX derivatives market on March 13, following the liberalisation by the State Administration of Foreign Exchange introduced at end of February.

Renminbi depreciation has been one of the market's most talked about issues with many predicting the trend to continue well into 2017. But ICBC Asia’s co-head of global markets Jimmy Jim told GlobalRMB that such fears are overblown and he believes the renminbi is maturing into a two-way fluctuating currency.

The Hong Kong Exchange traversed a difficult financial year, marked on the one hand by sagging trading on the Stock Connect, and on the other a surge in RMB FX derivatives activity. For 2017, HKEX’s chief executive Charles Li said more RMB products are in store.