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Free AccessMNI: PBOC To Act If Yuan Falls Fast - Trader, Advisor
The People Bank of China is expected to curb any sharp weakness in the yuan should a stronger-than-expected fixing for the onshore CNY fixing fail to slow its depreciation, traders and advisors told MNI.
The PBOC is likely to take measures as the yuan approaches 7.3 to the dollar, which would be its weakest level since November 2022, a Shanghai-based trader told MNI, pointing to the stronger-than-expected CNY parity price in the past two consecutive trading days. On Tuesday, the central bank set the daily fixing at 7.2056, compared with traders’ averaged estimate of 7.2209, after USDCNY surged over 414pips to 7.2425, the highest in seven months, and the offshore USDCNH rose 365pips to 7.2449 on Monday.
One option for the PBOC would be to trigger its so-called “counter-cyclical factor” for the fixing, he said, adding that 7.3 will be breached soon unless the central bank acts following the quick fall through 7.2 on Monday amid disappointment over the strength of Chinese economic stimulus. (See MNI: PBOC Seen Capping Further Sharp Yuan Weakness)
RESERVE REQUIREMENTS
A continuing speedy fall by the yuan could also prompt moves such as a cut to forex reserve requirement ratios, he added. Markets are also on the lookout for further stimulus, though the trader noted that the PBOC’s recent 10bp rate cut was seen as underwhelming and did little to boost sentiment.
A policy advisor who asked for anonymity said the PBOC has been more tolerant of this round of depreciation than expected, indicating it would probably prefer currency weakness to strength, though it would still act to quell excessive volatility.
The priority for officials will be to shore up market confidence in China’s economy, the advisor said, adding that more needs to be done than the PBOC’s 10bp rate cut.
The yuan jumped on Tuesday after the fixing was announced. USDCNY closed at 7.2181 at 16:00 pm Beijing time, compared with 7.2425 on Monday.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.