J.P. Morgan analysts are maintaining a long position on the U.S. dollar/Chinese Yuan (USD:CNY) exchange rate, according to a Global Asset Allocation report. The exchange rate has remained within the range of 7.25-7.27 in recent weeks. The USD:CNY index has increased by over 2% year-to-date and by 0.43% from the previous month. The report suggests that dividend payout pressure is expected to increase starting in June and peak in late July. The Central Bank of the People's Republic of China has expanded the quota for Qualified Domestic Institutional Investors (QDII) for the first time since last year. The report also mentions that with the USD:CNY exchange rate tracking about 1% below rate differentials and geopolitical risks being 'relatively benign,' it may be in the interest of the People's Bank of China (PBoC) to release some depreciation pressure in exchange for greater policy room for foreign exchange stability in the future. J.P. Morgan's three-month call spread for the USD:CNY exchange rate is set at 7.25/7.37, with a spot reference of 7.2663. The cost of the call spread is 45 basis points and is marked at 32 basis points. [3eb6bd53]
China's People's Bank of China (PBOC) is expected to set the yuan mid-point at 7.2653 per dollar, according to a Reuters estimate. The mid-point is the reference rate around which the yuan is allowed to trade in a narrow band. The PBOC sets the mid-point every morning and allows the yuan to fluctuate up to 2% above or below that level during the day. This move by the PBOC is significant as it indicates the central bank's stance on the value of the yuan against the dollar. The exact timing of when the PBOC will set the mid-point is not specified in the article. [735dfd09]