Markets are taking it that the PBOC has given the green light to further yuan depreciation at the fixing today
- PBOC sets USD/ CNY reference rate for today at 6.9225 (vs. Friday at 6.8996)
- PBOC says it is able to keep the yuan stable at a reasonable balanced level
The Chinese central bank fixed the yuan at its weakest level on the year and the first time above the 6.9000 threshold, prompting markets to interpret it as them giving the green light for the currency to depreciate further.
That saw USD/CNH (offshore) climb to its highest level on record above the 7.00 handle while USD/CNY (onshore) rose to its highest level since the global financial crisis - first time breaching 7.00 since May 2008.
With US-China trade tensions escalating once again, the impression here is that China has little incentive to keep a stronger yuan and more so considering how global trade - especially exports - has slowed down.
The Chinese central bank has been "playing nice" during trade negotiations by keeping the yuan somewhat stable but the move here can largely be interpreted as that we have crossed the key line in the sand.
And I'm not just talking about trade talks being abandoned/breaking down, but also in the aspect of a currency war. It shows that China isn't showing much care for Trump's tirade about countries weakening their respective currency and that adds to the reason for markets to be more nervous/jittery to start the week.
