Chinese Renminbi switched to premium in deferred months

Discussion in 'Forex' started by comintel, Mar 28, 2009.

  1. The Chinese currency a week or so ago suddenly switched from being inverted (deferred months lower) to "normal" (deferred months higher in price).

    Can anyone explain this?

    Is it just market expectations?

    Whatever happened to "interest rate parity."

    During all of this time the spot rate for the renminbi has not moved much.

    I have been short the renminbi (aka yuan) for some months in anticipation of an eventual competitive RMB devaluation. I have been losing money all this time as the deferred months rise in price as they become current. (It is only a small position among others so it is not a significant loss).

    The new slope appears to make it much more attractive to short the renminbi,

    (I am used to talking in terms of the futures price which is quoted as CNYUSD. If you are more used to forex USDCNY then the graphs would of course be the other way up).

    Any comments?
  2. Why? Do you find it attractive to short crude when there is contango more than when there is backwardation?

    I think it indicates a steepening of the yield curve, meaning higher future expected interest rates.
  3. I guess you are right that it means that the market expects higher expected interest rates.

    However, I do not agree with those expectations.

    I expect the RMB to fall or at least stay constant. In fact, Chinese authorities have said it will not rise further.