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Iris Pang, economist at ING, suggests that the USD/CNY stability is one of the big focuses of the Chinese government and it is beginning to look clearer that yuan stability means the central bank manages the yuan movements in a narrow range.

Key Quotes

“Onshore yuan depreciated 0.2% against the dollar in March, and so far has dropped 0.3% in April (until 29/4/2019). These narrow range bounds are very different from the movements observed in the first two months of 2019 when the yuan appreciated 2.45% against the dollar.”

“It’s important to note that not only has the range narrowed, but the direction has also changed from yuan appreciation to yuan depreciation.”

“We believe the change in direction, albeit small in substance, is a way for China to show that its yuan policy is independent from the influence of other countries. We think this is a snub to the Trump administration who said that the yuan cannot depreciate if there is a US-China trade deal.”

“We’re ruling out a sharp yuan appreciation because we believe that will be interpreted as appeasing the US, which is probably politically incorrect from Beijing’s point of view and we think a substantial yuan depreciation would only be possible if China wants to pick a fight with the US, at the cost of increasing market concern about capital flight from the country and this seems highly unlikely.”

“So, neither a sharp yuan appreciation nor depreciation is likely for the political environment in 2019.”