It’s probably time to start watching for some kind of move from the PBoC to put a lid on yuan strength.
We’ve talked a ton about the fact that since the engineered short squeeze in late May/early June (an effort that included the introduction of a new “counter-cyclical adjustment factor” designed to give the PBoC more leeway to deviate from the previous day’s action when determining the fix), the yuan has been a one-way trade against the dollar.
Even a miss on the July export/import growth numbers didn’t stop the yuan from strengthening against the greenback as dollar bears hung their hats on the still sizable surplus.
Well consider this: the offshore yuan is now riding a 7-day winning streak against the dollar. That’s the longest stretch since July of 2014:
Also note there that USDCNH is sitting near an 11-month low, after falling overnight on Thursday following a stronger onshore fixing and weakness in the dollar.
Meanwhile, the onshore yuan just snapped its own 5-day winning streak with its biggest decline in almost 10 days on what Asia-based traders said was “pent-up FX demand from clients.”
As usual, this is a balancing act for Beijing. A stronger yuan discourages capital flight, but the longer this continues, the more likely it is to weigh on exports that are already decelerating.
As we put it earlier this week, this wouldn’t be the worst time to create some renewed depreciation. Especially if Xi wanted to jab back at Trump.