Yuan Under The Microscope

The yuan took a hit on the back of the PBoC's decision to effectively scrap the reserve requirement ratio on FX forwards transactions, thus lowering the cost of shorting China's currency. USD/CNH has virtually erased last Friday's losses, registered after a firmer than exp. PBoC fix. Today's fixing will provide much interest, with participants on the lookout for cues re: PBoC's approach towards rapid yuan strengthening over the recent months.

• The redback's sell-off has spilled over into Antipodean FX and AUD leads losses in G10 FX space as we type. USD has picked up a bid amid a softening CNH and a downtick in S&P 500 e-minis, with JPY & CHF also firming up a tad. Continued losses in oil prices have added pressure to commodity-tied FX.
• USD/KRW breached support from its YtD low at the re-open and dropped to its worst levels since Apr 2019, as South Korea returned from its long weekend, catching up with the risk-on flows seen towards the back end of last week. The won's delayed reaction, coupled with South Korea's decision to lower its social distancing guidance, helped outweigh the potential impact of a softer yuan & the presentation of North Korea's new ICBM.
• The U.S. observes Columbus Day holiday, albeit local exchanges are open (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.