Nomura: Renminbi fixing model points to 6.6709, with countercyclical adjustment narrowing the appreciation
Nomura expects the USD/CNY fixing to be 471 points lower than the previous fixing, but only 2 points below the previous official spot close; including the countercyclical factor, the forecast is 6.6910, down 270 points from the previous fixing.
Original source：Nomura Singapore Ltd.First published on Unhidea：Original source date：
Key takeaway
The renminbi appreciation implied by Nomura’s fixing model is large relative to the previous fixing but small relative to the previous spot close; the countercyclical adjustment narrows the former from 471 points to 270 points.
How much renminbi appreciation does 6.6709 imply?
On 26 October, Nomura’s model forecast the USD/CNY fixing at 6.6709, down 471 points from the previous fixing of 6.7180. The quote expresses how many renminbi can be exchanged for 1 US dollar; a decline in the figure corresponds to a stronger renminbi.
The 471 points measure the distance between the current model forecast and the previous fixing. This puts the focus of the day’s pricing on the size of the fixing’s adjustment toward a stronger renminbi.
Why is the change small when compared with the closing price?
The same forecast of 6.6709 is only 2 points below the previous official spot close. Relative to this benchmark, which is closer to the prior trading result, the fixing level given by the model is almost unchanged.
Therefore, “down 471 points” and “only 2 points lower” can both be true: the former compares two fixings, while the latter compares the forecast fixing with the spot close. The key to reading these figures is to distinguish the pricing benchmarks and avoid interpreting the entire 471 points as additional appreciation relative to the closing level.
How does the countercyclical factor change the forecast?
With the countercyclical factor included, Nomura’s model forecast becomes 6.6910, down 270 points from the previous fixing. The adjusted direction still points to a stronger renminbi, but the move is smaller than in the model result without the factor.
The two model results differ by 201 points: the countercyclical adjustment narrows the decline relative to the previous fixing from 471 points to 270 points. 6.6709 and 6.6910 correspond to different model settings; when interpreting the day’s forecast range, this adjustment should be considered in the same comparison.
