Fix Uneventful, But Liquidity Ops Scrutinised

A fairly uneventful yuan fixing, the PBOC fixed USD/CNY at 6.4536, just marginally higher than sell side estimates of 6.4529. USD/CNY is last down 66pips at 6.4490, while USD/CNH has gained 33pips to 6.4387 after touching 6.4009 earlier this week.

• The potential for heightened Sino-U.S. tensions has been a point of discussion in recent days, after the FT released a source report suggesting that China is exploring the imposition of export restrictions on rare-earths, in an attempt to stifle the U.S. defence ministry. Late Wednesday saw a piece in China's state-owned Global Times suggest that "China's rare-earth exports to the US are not being restricted and are continuing unaffected, but reviews of such an option may have been done and measures could be taken against foreign companies that hurt China's interests, when necessary, experts and industry sources said."
• The bank did conduct a net drain of CNY 260bn, injecting CNY 20bn into the system, and matching CNY 200bn of MLF maturities. The overnight repo rate has risen 40bps in response to the drain, especially considering the PBOC refrained from mass liquidity injections heading into LNY. Still, at 2.23% the overnight repo rate is some way off highs seen at the end of January on fears of a liquidity crunch.