Offshore Yuan Fully Erases Post-Fixing Gains

USD/CNH operates near unchanged levels (last 7.3077) despite the PBOC's most forceful pushback against redback depreciation via its daily fixing on record. The central bank set the mid-point of USD/CNY trading band 1,041 pips below the average estimate in a Bloomberg poll, the largest gap ever. Despite that move and weaker US Tsy yields this morning, USD/CNH gradually reversed losses and is back to positive territory.

• Concerns about China's economic recovery continue to linger in the background, with Nomura lowering its 2023 growth outlook to +4.6% Y/Y today from +5.1% previously, citing a "downward spiral" in the local economy. They warned that "in coming months, growth will face further pressure as the post-pandemic pent-up demand for travel runs its course." This comes after the downgrades to China's growth outlook from JP Morgan and Morgan Stanley earlier this week.
• Separately, the WSJ circulated a report noting that "the yuan probably still has farther to fall, but a really sharp move would be a sign of either deepening desperation (...) or a capital-controls failure. Both remain unlikely, but either would be deeply worrying."
• Izvestiya reported that Russia may allow its Federal Treasury to conduct FX swap transactions with the Chinese yuan. Such transactions were earlier conducted with dollars and euros but this has become almost impossible in the current sanctions regime.