As China's offshore Yuan collapsed back above the 6.70/USD - after the biggest 14-day rout of the currency in history - PBOC Governor Yi stepped in with comments (and we suspect actions) that lifted the formerly bid-less currency 8 handles for its biggest gain since March.
People’s Bank of China Governor Yi Gang said China will "keep the yuan exchange rate basically stable at reasonable and balanced level," a repetition of standard language that helped stoke speculation that policy makers are prepared to take tougher actions to arrest the plunge in the currency.
And later - as the effect of Yi's manipulation was wearing off - a second Chinese official stepped up to the jawboning plate, seemingly saying the opposite of the PBOC governor.
Sun Guofeng, head of the central bank’s financial research institute, said that the currency’s decline isn’t the result of China deliberately weakening it to gain an advantage over the U.S.
"Recently the yuan’s exchange rate has shown some weakness. This is entirely due to changes in market expectations as external uncertainties rise rather than intended guidance of the central bank, ” Sun said in exclusive comments provided to Bloomberg News.
“China upholds multilateralism, globalization, free trade and rule-based international guidelines, and will not make the yuan’s exchange rate a tool to cope with trade conflicts.”
So Yi says - China will manipulate the currency to maintain a stable, balanced level.
But Sun says - China will not intervene, the recent move is all externalities and not an intentional retaliation to Trump trade wars.
One wonders if China is attempting to maintain a flexible peg as once again that 6.70 region becomes hard resistance for now...
So what happens next? Analysts are mixed:
Commerzbank analyst Zhou Hao told Bloomberg that "the PBOC is sending a verbal warning and intervention that the recent slump in the yuan was too quick” adding that:
"in the short term, the yuan could strengthen as traders take profit from the recent slide. But if the market ignores the PBOC and keeps pushing the yuan weaker quickly, the central bank may conduct heavy intervention to send a stronger signal."
Not everyone was convinced that the yuan weakness is over:
"while it does seem that PBOC is looking to smooth the move lower in the RMB, it doesn’t look like its ready to call time on the downtrend just yet,” said Stephen Gallo, head of European FX strategy at BMO. “My preference here is to continue looking for opportunities to get long of the 3M USDCNH forward in expectation of a move toward the 6.80 area heading further into the summer”
Presumably it all depends on Trump's next action - and given that stocks are soaring on the heels of looming trade tariffs, what is to stop him ramping up the rhetoric once again?