Following Friday's notable weakness in USDCNY (the biggest drop in the market rate since March and an abrupt change of recent trend), and trade data this weekend, the PBOC appears to have decided to try and put a stop to any weakness and smashed the USDCNY Fix lower by 0.37% - its biggest 'stronger CNY' adjustment since 2010 - when the Fed initially ended QE1 (and 2nd biggest shift since Lehman). Of course, we are sure it is nothing but a storm in a teacup that the largest economy in the world just re-valued its currrency fix by the most in 4 years... just days after the end of QE3 and the BoJ's insanity... but as we warned previously, [6] "we think that for China in particular [7] this latest BoJ action is perceived as an aggressive provocation that must be responded to forcefully." We note also that Japan's Abe and China's Xi are due to meet on Wednesday and perhaps this is a tactical move in that chess game.
Biggest strengthening shift in USDCNY fix since the end of QE1
[8]
USDCNY was its richest to the fix in 8 months...
[9]
Notice the significant meltdown in CNY into the close of Friday's Asia session... and the plunge in USDCNY thanks to tonight's fix...
[10]
As Bloomberg reports,
The Chinese trade surplus reported over weekend, combined with "profit taking on USD longs Friday post-nonfarm," contributed to today’s yuan-fixing increase, according to Scotiabank.
Fixing "basically in line with the pattern from the authorities that has followed the release of trade data," Sacha Tihanyi, senior strategist, says in interview
Also sees scheduled meeting between Xi and Obama on Wednesday "playing a part"
Charts: Bloomberg
