Stronger Yuan On PBOC Radar

The PBOC fixed USD/CNY at 6.4605, some 218 pips firmer for the yuan on the weaker US dollar, but significantly softer than sell side estimates of 6.4510. According to Bloomberg analysts this is the biggest upside miss for the estimate since the inception of the metric in mid-2018.

• The PBOC have been reluctant to intervene directly in currency markets, China is still on the US Tsy's watchlist for currency manipulation, but sources say that state banks have purchased USD at the PBOC's behest in recent months in order to stem yuan strength.
• Elsewhere, data yesterday showed the pace of China's credit growth slowed in December. This is largely reflective of a seasonal lull and the implied tapering of stimulus by the PBOC. Bloomberg analysts say "the weaker-than-expected data is unlikely to shift the PBOC's policy stance because it has already started easing the macro leverage ratio. But we still expect the central bank to inject long-term liquidity into the banking sector in 1Q, probably via targeted tools, to help support lending to smaller businesses."