Over the weekend the People's Bank of China told banks/financial institutions in the country they would no longer need to set aside cash as reserves when purchasing forex for clients through currency forwards.

As explained in that linked post, the move is a negative for the yuan, at the margin, and the currency has indeed dropped today.

In previous weeks the yuan has surged due to:

  • the recovery for the economy ahead of the rest of the world (first in, first out)
  • the sovereign debt yield premium over US Treasuries
  • improving chances for Joe Biden in the US election and a perhaps, therefore, a less confrontational stance from the US administration towards China

Putting today's drop for the CNH into context with a look at the currency over the past months:

Over the weekend the  People's Bank of China told banks/financial institutions in the country they would no longer need to set aside cash as reserves when purchasing forex for clients through currency forwards.