💴🔺 Recommend Long CNH/JPY 3-Month Forward: ANZ Strategy

• Recent stronger-than-expected yuan fixings are a clear signal from the Chinese authorities that they wish to limit the depreciation pressure. Dollar strength would lead to more yen weakness, given how strongly the Japanese currency has been driven by US-Japan yield differentials.

• Recommend going long 3M CNH/JPY forward at 20.02 (spot reference 20.15), targeting 21.20, with stop-loss at 19.50 Historically, the yuan has tended to outperform the yen in the September to November period. Since 2011, CNH/JPY has appreciated strongly over those three months.

• The average percentage spot gain is 0.8% in September,1.6% in October and 2.1% in November.

• Unlike the PBOC, the BOJ isn’t expected to intervene to halt the yen’s weakness, apart from the occasional jawboning. Widening divergence between China and Japan’s trade balances, with the former running record surpluses while the latter posts large trade deficits, points toward further upside for the pair.

- ANZ Strategy