Inspired by recent work at the China Economics Seminar, we were shocked at the recent shifts in USDCNY. While all has been calmly proceeding in the right direction from US perspectives with CNY appreciation (though maybe not fast enough for Chuck Schumer's liking), under the surface there is what appears to be a fierce battle between market participants and the PBoC. By breaking down the cumulative shift in USDCNY into intraday 'market/trading' movements (from fixing to close) and interday 'government-assisted' movements (from prior close to fixing), we can draw some perspective on what the market is trying to do and what the government is doing. Evidently from the chart, the outward appearance that CNY appreciation is slowly but surely occurring (the green line) is misleading, the clear signal is a market trading the USD higher (helped by European angst) and a PBoC massively intervening.
Incredibly, since the fixings began consistently in Jan 2006, intraday cumulative moves are now exactly ZERO at the close on Friday (red line), with the entire move higher in CNY now accounted for over the past five years by the PBoC's actions (blue line). Furthermore, the shifts of the last four months are on a scale we have not seen before making us wonder just how many USD are being sold out of Chinese reserves into the market to stabilize the CNY?