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Weaker Yuan is likely China’s answer to Trump’s trade war.  

The People’s Bank of China (PBOC) set the Yuan mid-point/reference rate at 6.5569 today – the weakest fix since Dec. 25, 2017. The Chinese currency has been taking a beating of late. At press time, USD/CNY is trading at 6.5830 – also the highest level since December 2017 and up 5.4 percent from the yearly low of 6.2437.

The central bank announced a cut in the reserve requirement ration on Sunday – the move is seen infusing $100 billion to help the economy cope up with the pressures of a trade war with the US. Also, PBOC did not hike rates following the Fed’s 25 basis point rate hike. The resulting widening of the yield differential in the USD-positive manner seems to have put a strong bid under USD/CNY pair.  

It appears China is banking on a weaker Yuan to soften the  blow from Trump’s trade war tactics.