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Holds Near 3-Year High

CNH

After strengthening throughout the session on Wednesday, the yuan is weaker today, USD/CNH up 42 pips at 6.3863, but rising from the lowest levels since June 2018.

  • There were reports on the wires that US trade chief Tai and Chinese counterpart Liu have held constructive talks over the phone and agreed that trade is very important. Both sides said talks will continue.
  • Elsewhere there was a report in China Securities Times that the exchange rate should be decided by the market, a sign that the PBOC will refrain from regular interventions. The report said that the PBOC will only attempt to influence the yuan under extreme conditions. This follows comments from a PBOC official last week that China should allow the yuan to appreciate. "As an important consumer of commodities globally, China is inevitably impacted by international market prices through imports," Lyu Jinzhong, director of the research and statistics department at the PBOC's Shanghai unit, the article has now been deleted.
  • Meanwhile, the PBOC fix was broadly in-line with sell-side estimates again, another sign the bank is comfortable with the yuan at these levels. Other comments in the media this week support this view. The China Securities Journal said yesterday the yuan could rise further due to domestic economic recovery and capital inflows as well as a weaker USD, while Citic Securities were quoted in the Shanghai Securities News that the yuan could rally to as high as 6.2.
  • Offshore yuan's 1-week implied volatility has risen every day this week and is at the highest level since late March at 4.8050.
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