CNY likely to remain relatively steady in the months ahead, says Scotiabank

The CNY is expected to remain relatively steady in the months ahead as China will continue to prioritise economic, financial and social stability ahead of a twice-a-decade leadership reshuffle at the 19th CPC National Congress. The nation has pledged to firmly safeguard the bottom line in preventing systemic financial risks this year, Scotiabank reported.

The country’s iron ore import volume rose 8.6 percent y/y in the first four months, slowing from a 12.2 percent increase in the first quarter as China's port stocks of imported iron ore hit a record 136 million tonnes as of May 5.

In the meantime, China’s steel export volume tumbled 25.8 percent y/y in the January-April period. The nation’s factory activity is likely to expand at a slower pace in the months ahead, particularly if taking into consideration a widening gap between the PMI Output sub-index and the PMI New Orders sub-index.

The inverted onshore-offshore dollar/yuan spot gap has narrowed substantially and could swing into positive territory intermittently. Meanwhile, 3M 25-delta USD/CNH risk reversal has increased persistently in the past sessions.

"We believe the regulators need to well manage market expectations to avoid stoking panic and prevent onshore equities and bonds from persistently tumbling to defend the nation’s financial stability and the CNH value," the report said.