🐂 Not all bull runs are created equal. November’s AI picks include 5 stocks up +20% eachUnlock Stocks

USD/CNY volatility likely - BOA

Published 2024-10-14, 08:00 a/m
© Reuters.
USD/CNY
-
USD/CNH
-

Investing.com - Bank of America (NYSE:BAC) takes a look at the USD/CNY pair, seeing potential volatility going forward.

At 07:55 ET (11:55 GMT), USD/CNY traded 0.3% higher at 7.0849, up 1% over the course of the last week.

“We continue to believe that the upcoming November 5th US election and attendant tariff risks pose an asymmetric depreciation risk to CNY,” analysts at the US bank said, in a note dated Oct. 14.

A key point is that USD/CNY 7.00 presents a floor into year-end as China grapples with restoring growth dynamics and credibility, the bank added. 

“Our fair value estimates on both a 3-month basis and longer-term 3-year basis suggest a fundamental valuation of USD/CNY 6.95,” BOA said. “From this perspective, we think it would be counter-productive for CNY to sustain an appreciation below 7.00 against the USD, as this would risk tightening monetary conditions at a time when China is trying to stimulate growth and achieve its target of about 5% GDP growth.”

As a result, the bank entered a 1M USD/CNH call spread (7.20-7.35 strikes) for 27.25bps with a maximum payout to cost ratio of 7.6:1 and a 1M forward reference of 7.0685 (Delta 15%). 

“1M at the money implied volatility is elevated at similar levels to the 2020 1-month pre-election period, while the tariffs risks are substantially higher,” the bank added. 

The risk to this trade would be broad based USD weakness or a benign US election outcome which seeks to de-escalate US-China tensions.

 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.