Nomura Sees RMB’s Trading Band Widen This Summer

Nomura predicts that the RMB’s daily trading band will likely be widened to 2% from its current level of 1% in June or July, according to a research report published by Japan’s largest brokerage firm.

Nomura also forecasts for further RMB appreciation against the U.S. dollar this year. It says RMB will be trading around 6.18 to 6.08 to the dollar in the third quarter.

Two past trading band widening actions took place weeks or days before the U.S.–China Strategic and Economic Dialogue (S&ED) meetings, on April 14, 2012 and May 18, 2007. This year’s U.S.–China Strategic and Economic Dialogue is scheduled for July 8 to 12. Any trading band widening announcement could come before the Dialogue, Nomura says.

China’s dramatic foreign exchange reserve increase during the first quarter – up US$128 billion to a total of US$3.44 trillion – is also drawing pressure from the U.S. for further currency policy liberation by Beijing.

Past experience shows that there is no established market reaction to a RMB trading band widening. Often, global environment remains the most significant market mover. After the April 16 band-widening in 2012, the actual trading range of RMB was even tighter following the Eurozone debt crisis.

Nomura’s predictions follow recent comments by Chinese officials on the RMB’s trading band. On April 17, Wang Yu, deputy director-general of the research bureau of the People’s Bank of China, said that China will likely broaden RMB’s trading range. A day later, the deputy governor of the Chinese Central Bank, Yi Gang, also made similar comment, saying that "the exchange rate is going to be more market-oriented," and the RMB’s "trading band will be further widened in the near future."

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