PBoC commits to narrow CNY-CNH spread

PBoC raised today's USD-CNY fixing rate to 6.4010 this morning, 704pips or 1.1% higher than yesterday's fixing, and also higher than yesterday's closing at 6.3858. As Chi-na's central bank devalued the CNY fixing rates sharply for three consecutive days, the USD-CNY opened much higher and breached above 6.40 this morning. 

Offshore CNH traded 500pips higher than onshore CNY at around 6.45. The PBoC stated this morning that China will maintain 'normal' movement of CNY and would promote consistency between CNY and CNH, notes Commerzbank. This is the second time this month that the central bank mentioned that it could want to reduce the divergence between CNY and CNH, indicating that the spread between CNY and CNH could narrow in the foreseeable future. 

"In general, we see weakening bias in CNY exchange rate in the next 12-18 months, and the volatility of CNY and CNH will increase substantially going forward", says Commerzbank.