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26 Feb 2015
China's foreign reserve managment influences markets - SG
FXStreet (Guatemala) - Sebastien Galy, analyst at Societe Generale, explained that China’s foreign reserve management influences global markets both by its actions and its influence on other EM reserve managers and local asset managers.
Key Quotes:
"Our analysis suggests that the PBoC is intervening far less in CNY/USD as it moves to a more flexible exchange rate. Interventions are proving increasingly difficult to finance as older higher yielding G10 bonds mature."
"This suggests that EM reserves and similarly risk-averse investors will tend to sell EUR to reinvest in the US, leaving EUR/USD a sell on large rallies. In addition, as the PBoC still sterilizes large bouts of portfolio inflows, the USD would then strengthen vs EUR and CHF."
"This suggests using EUR and CHF as funding for an eventual EM FX rally, slated for H2 according to our EM team,or maybe a tad earlier."
Key Quotes:
"Our analysis suggests that the PBoC is intervening far less in CNY/USD as it moves to a more flexible exchange rate. Interventions are proving increasingly difficult to finance as older higher yielding G10 bonds mature."
"This suggests that EM reserves and similarly risk-averse investors will tend to sell EUR to reinvest in the US, leaving EUR/USD a sell on large rallies. In addition, as the PBoC still sterilizes large bouts of portfolio inflows, the USD would then strengthen vs EUR and CHF."
"This suggests using EUR and CHF as funding for an eventual EM FX rally, slated for H2 according to our EM team,or maybe a tad earlier."