Today, the PBOC fixed the yuan at its weakest against the dollar since January
And it's the fifth straight day of a weaker fix for the yuan relative to the greenback. President Xi may not be on Twitter but he has subtly made clear that he will not let Trump walk over him when it comes to trade.
The option to go with yuan devaluation as a tool to respond against US tariffs was touted back in April, but didn't really amount to anything in the end. If you need some background, I highlighted here why China would rather go with devaluing the yuan more than any other option if trade matters with the US escalate further.
So, the question now is are we at that point where a yuan devaluation answer is being deployed by Chinese authorities?
To put things into context, when the PBOC devalued the yuan in 2015 we saw USD/CNY jump up by 3.85%. From the lows this year, USD/CNY has jumped by more than 5%. In the past two weeks alone, it has moved up by about 3.71%.
The move in the past two months had a lot to do with the dollar strengthening since mid-April, but over the past week the PBOC has been adamant in weakening the yuan with what seems to be little to do with the dollar's performance.
Looking at it, the removal of the counter-cyclical buffer back in January now gives them more leeway to fix the yuan lower. And that is something they can point to if the blaming game starts to surface. In my earlier post in April above, I talked about how having a fixing methodology gives China the advantage to weaken the yuan and this is a prime example of that.
There is still a lot of vagueness when it comes to how the PBOC sets its USD/CNY fixing and given the trend that we're seeing this week, it feels like China is firing a big warning shot to Trump.
Whether or not he recognises it or he listens to it, is a whole other topic of debate. But for now, I don't believe China is going full-on in devaluing the yuan but this is just a glimpse of what we could see if the US decides to pursue this trade war further.
