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(Bloomberg) — China has maintained its resilience to the yuan’s weakness by establishing a stronger-than-expected currency for the seventh day in a row, raising hypotheses about an imaginable adjustment of the mechanism to prevent the yuan from depreciating further.
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The People’s Bank of China set the correction at 6. 8821 per dollar, 103 pips above the average estimate from a Bloomberg analyst survey. Although the move was softer than Tuesday’s, when the resolution skewed the most powerful moment on record, it surprised traders. That’s because the onshore yuan closed wednesday near the PBOC correction, indicating less need for intervention.
Some analysts say Thursday’s strong solution may be just the result of the PBOC’s discretionary adjustment to its fixation formula known as the countercyclical thing (CCF). The measure introduced in 2017 came with a political preference to guide the yuan and officially left in October 2020 At least two Chinese banks replaced their models to take advantage of the yuan’s weakness last week, according to other people familiar with the matter.
“I think the PBOC is already applying the CCF to its fixation, but it is not officially pronouncing it” because it possibly wouldn’t need such a currency control policy to be blatantly identified before the party congress, said Kiyong Seong, Asia’s chief macroeconomic strategist. at Société Générale SA in Hong Kong. The purpose of the CCF is to curb the expectations of the consulting and livestock market so that the yuan carries a more controlled depreciation trajectory, he said.
The recent era of yuan weakness triggered by the PBOC’s rate cut last month worsened following aggressive comments from the Federal Reserve and bets on further rate hikes through the European Central Bank. the yuan at 7 per dollar, a point last noted in July 2020.
The yuan’s losses lead to the hypothesis about whether the PBOC will use more powerful measures to engage it. The PBOC had cut the bank’s foreign exchange reserve requirements index in April when the yuan fell more than four percent. It may also be the liquidity of the yuan in the offshore market to make it more expensive to sell the currency in the open.
Policymakers will continue to try to ease depreciation pressures and stabilize the yuan as much as possible before the party’s congress that begins in mid-October, said Khoon Goh, Australia’s head of Asia research.
The onshore yuan fell 0. 2% to 6. 9084 to the dollar at 12:34 p. m. The offshore yuan fell 0. 2% to 6. 9187 to the dollar.
(Updates throughout. )
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