Large Liquidity Drain Sees Yuan Gain

The PBOC fixed USD/CNY at 6.4847 around 19 pips higher than sell side estimates as the PBOC again demonstrate its asymmetric response to yuan strength.

• So far in January misses against sell side estimates have totalled 203 pips, while the whole of December totalled 97 pips with fixings usually higher than expected, which indicates the PBOC's preference for a weaker yuan.
• The China Foreign Exchange Trade System (CFETS) has adjusted the weightings in its currency basket starting earlier in January. Analysts noted the move, which reduces the impact of USD comes as China seeks to reduce its dependence on the greenback for trade and finance. At the time analysts said the changes could affect mid-point.
• Yesterday the rate remained stubbornly below 6.50 – last trades at 6.4789, taking a leg lower after a large liquidity drain, even with LNY and tax payments looming.
• The bank drained a net CNY 278bn after a big (CNY 280bn) injection last Tuesday, CNY 250bn are scheduled to roll off tomorrow.
• On a related note, in a 21^st Century Business Herald piece PBOC adviser Ma Jun beseeched the government to put a stop to asset bubbles, adding he saw bubbles in the stock market and real estate.