China Fixes Yuan Weaker Than 7 For First Time In Over 11 Years

For the first time since March 2008, PBOC fixed the yuan weaker than 7 per USD.

 

Offshore Yuan was leaking lower into the fix but rallied on the 7.0039 fix...

The Fix was slightly stronger than the expectation of 7.0205...

This shift enables offshore yuan to weaken down to 7.1440...

But, as Nomura notes, it could be set to get worse.

If it turns out that actual economic momentum in China has flagged to the extent suggested by the deterioration in Chinese equity sentiment, past patterns suggest that there is still scope for RMB to weaken further. 

The possibility remains that the yuan could depreciate even more against JPY and EUR than against USD, judging by the relative shift lower in the RMB Basket versus USDCNH, it seems that pressure is starting.

The PBOC decision comes as trend-following CTAs are chasing downside in Hang Seng futures and H-share futures at an increasing pace. They have restored their existing net short positions in Hang Seng futures to 48% of the YTD peak (June), and to 67% for H-share futures, which suggests room to build these positions further.