Yuan Gets Battered As PBoC Lowers Cost Of Betting Against It

The yuan sold off in reaction to the PBoC's decision from over the weekend to remove the reserve requirement ratio applied to FX forwards transactions, thus lowering the cost of betting against the redback. Participants read it as a signal that China's central bank is not comfortable with the yuan's rapid appreciation, which turned focus to the daily fixing of central USD/CNY mid-point. The PBoC fix was just slightly weaker than expected (CNY6.7126 vs. BBG est. of CNY6.7073) and after an initial knee-jerk higher, USD/CNH pared gains. That said, the rate remained comfortably above neutral levels.

• Yuan dynamics applied pressure to Antipodean FX, with AUD underperforming all of its G10 peers. Safe havens firmed up, with a continued fiscal deadlock in the U.S. & the newest ICBM unveiled by North Korea on the radar.
• USD/KRW plunged to its worst level since Apr 2019, catching up with market flow from over South Korea's long weekend. The relaxation of social distancing guidelines in South Korea also helped outweigh the potential impact of aforementioned yuan sell-off & geopolitical concerns.
• The U.S. observes Columbus Day holiday, albeit local exchanges are open (just cash Tsy markets are closed). Global data docket is very thin today. ECB's Lagarde, de Guindos, Villeroy, Schnabel and Panetta, Riksbank's Skingsley and BoE's Bailey, Ramsden and Haskel are due to speak.