Sino-US Tensions Resurface

The PBOC fixed USD/CNY midpoint at 6.4764, roughly in line with sell side estimates and around 56 pips higher than the previous fix as USD bounces and amid some renewed tensions between US and China.

• US National Security Adviser O'Brien has said the US is considering an additional response to China over coronavirus and arrests made in Hong Kong, while the Trump administration said Saturday the US would remove its restrictions on diplomatic interactions with Taiwan.
• Data showed inflation rose above expectations. CPI rising to 0.2% in December from -0.5% previously, while PPI moderated to -0.4% from -1.4% previously – both measures beat expectations.
• The strong data exerted little effect in the face of a weaker fix for the yuan and a US dollar on the rise, USD/CNH last up 195 pips at 6.4844.
• The PBOC drained a net CNY 15bn from the system, after draining CNY 510bn last week.
• Elsewhere, the PBOC will initiate structural monetary policies to boost the economy and keep the yuan stable in 2021, Governor Yi Gang said in an interview with Xinhua News Agency published late Friday. He added the PBOC would follow market-based yuan exchange rates, the managed floating regime and properly guide market expectations and that China's overall debt ratio was likely to normalize this year, and debt levels have already slowed since Q3.