Today's risk-friendly Yuan reference rate setting was a welcome relief, and I'm a tad surprised the broader market is not reading more into it. Then again, as Yuan trader, I'm probably reading to much into it, but possibly not.
Against the market lean, the more favorable than expected fix suggests the PBoC, despite all of the US administration trade and tariff rants. It is not about to weaponize the Yuan anytime soon and on the surface appears committed to honoring the trade deal commitments.
This week we bore witness to the immediate FX response after the US administration reignited the trade war flames, which saw USD/CNH tick up by 7 big figures. Not that surprising as the direction of travel makes sense as the rise in the US-China trade tensions would immediately place the Yuan under downward pressure. But in the past, that has not stopped the US Treasury or Trump for that matter calling out China for manipulating its currency weaker. But the last thing market needed today was to have the PBoC peg the Yuan considerably softer, thereby opening a new fissure to vex global markets.
So for today anyway as far as FX markets are concerned trade war is put on the backburner.
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Yuan Watch: Friendlier Fix Than Expected
Published 05/06/2020, 12:20 AM
Updated 07/09/2023, 06:31 AM
Yuan Watch: Friendlier Fix Than Expected
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