Chinese Yuan Analysis and News
- Chinese Authorities Signal Discomfort with Yuan Strength
- Yuan Turnaround Could Prompt Fresh Leg Higher for USD
The Chinese Yuan has come back into the limelight after the PBoC announced yesterday that it would raise the reserve requirement ratio for FX deposits to 9% from 7%, effective as of December 15th. In turn, this would alleviate appreciation pressures for the Yuan and signal that the PboC are growing wary of persistent Yuan strength. This also marks the second time this year that PboC has raises the RRR on FX deposits, the prior occasion in late May/early June to 7% from 5%, prompting a short-term bottom in USD/CNH, rising 2.2% in the following two weeks. The move to raise the RRR on FX deposits reduces the supply of dollars and thus put pressure on the yuan to weaken.
USD/CNH Chart: Daily Time Frame
Another move by Chinese authorities, which further signalled their discomfort with the Yuan’s rise had come via the Yuan fixing, which was set at the weakest level relative to estimates since 2018. As such, with the narrative surrounding persistent Yuan strength being challenged and perhaps now hitting its peak, sentiment may begin to shift against the yuan. A close above 6.4000 would be key for bulls and add to the USD positive environment.
A turnaround in Yuan May Prompt Fresh Leg Higher in USD