Analysts at ANZ Bank New Zealand Limited (“ANZ”) explained that the big news comes with the PBoC re-instating a 20% reserve requirement on some trading of FX forwards – a move akin to that on 1 September 2015 to help stem CNY declines after the August devaluation.
Key Quotes:
“In effect, 20% of notional is locked up for a year with no interest, making it more expensive to short CNY. USD/CNH spot fell on the news, falling from 6.89 to 6.84. Risk sentiment rose and emerging markets rallied.”
“However, shortly after China’s Ministry of Commerce retaliated to Trump’s plan to increase the tariff rate from 10% to 25% on the previously announced $200bn of Chinese imports.”
“Four tiers of tariffs ranging from 5 to 25% will be placed on over 5000 different products imported from the US. Officials said this was a “rational and restrained” response to the US action and their implementation is conditional on what the US decides.”
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