Yuan Weakens Slightly After Weaker Fix

The yuan has weakened slightly in Asia, bouncing off lows hit near the end of the European session, USD/CNH last up 0.17% at 6.5411. The PBOC fixed the yuan at 6.5507, around 16 pips weaker than sell-side model estimates.

USD/CNH closed at the highest level since June 2018 on Thursday, bringing the 6.50 level into focus. Trading volumes have boomed, touching double recent averages during Asia hours on Thursday.

• The PBOC drained a net CNY 110bn in open market operations withdrawing cash from the financial system for the fourth consecutive day after unexpectedly injecting CNY 200bn at the start of the week.
• Recent press reports from YiCai have said China should include yuan exchange rate volatility in monetary policy frameworks such as the formation of a Financial Conditions Index (FCI). Since the PBOC has stopped normalized intervention in the forex market, a FCI could serve as a tool to assess liquidity in the market and as a reference to future policy decisions, Guan said. A FCI would help ensure domestic economic and financial stability and would not target a specific exchange rate level.