In view of Chief Analyst at Danske Bank Jens Sorensen, the case of a weaker Yuan still remains on the cards.
Key Quotes
“CNY has gained this morning and USD/CNY has declined to 6.82 after the PBoC announced on Friday that it will impose a reserve requirement of 20% on some trading of FX forward contracts, which effectively makes it more expensive to short the CNY”.
“The announcement from the PBoC came one hour before the Chinese authorities released the list of USD60bn of US imports it intends to hit with tariffs, and the timing of the PBoC announcement seems coordinated in order to avoid a kneejerk sell-off in CNY”.
“This might also indicate that the PBoC is no longer comfortable with the rapid pace of CNY depreciation. The new reserve requirement on FX forward trading might slow down the depreciation pressure on CNY in the short term, but we still see a case for a higher USD/CNY driven by Chinese growth concerns and PBoC easing”.
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