Weak PBOC Fix Grabs Attention But Redbacks Stages Dynamic Rebound

The PBOC drew attention again by setting their central USD/CNY mid-point 179 pips above median estimate in another attempt to pour cold water on the redback's recent rally. The divergence with market expectations was widest on record, according to Bloomberg calculations. The signal provided by a weak yuan fixing came a day after China's central bank raised the FX RRR by 2pp, forcing banks to keep more foreign currencies in reserve.

• CNH: Offshore yuan took a hit from the PBOC fix but quickly licked its wounds and recoiled strongly, becoming the best performer in Asia FX space. Recovery may have been aided by the perception voiced by some sell-side analysts that PBOC measures are only intended to slow redback appreciation over the near term.
• KRW: Spot USD/KRW reopened higher after absorbing yesterday's risk-off impetus. The won remained the worst Asia EM performer, with a surge in local critical Covid-19 cases showing no signs of letup.
• IDR: Spot USD/IDR jumped in early trade and continued to operate around its opening levels. Bank Indonesia's retail sales index registered at +10.1% Y/Y in November, up from +6.5% in October.
• MYR: Spot USD/MYR crept higher early on, but trimmed the bulk of gains through the session. Malaysia's industrial output grew 5.5% Y/Y in October, exceeding median estimate of 3.7%.
• PHP: The peso traded on a softer footing after data showed that Philippine trade deficit unexpectedly widened in October. BSP Gov Diokno reiterated commitment to providing "appropriate policy support" on Thursday, a week ahead of the next monetary policy meeting.
• THB: Thai markets were shut in observance of a public holiday.