Offshore Yuan Falls After Weaker-Than-Expected Fix, Snaps Back

Ok, so as tipped earlier in the live feed…

… the PBoC set the yuan fix weaker-than-expected after the offshore yuan extended its record winning streak to 14 days on Monday.

You’ll want to watch and see how this develops as the session progresses, but the thing about these fixes is that you need to understand them in the context of expectations. So although the reference rate was strengthened by 0.45% to 6.5370, that wasn’t as strong has the consensus from 17 traders and banks, who collectively guesstimated 6.5291.

Hence the offshore yuan snapping its win streak (although again, that could change):

As we’ve said repeatedly, with Chinese equities riding a hot streak, with capital flight seemingly under control, and with a rapidly appreciating yuan bound to weigh on the economy eventually, don’t be surprised if the PBoC takes the opportunity to push back – at least a little bit.

Of course with the Party Congress approaching, they’ll be hesitant to do anything too dramatic.

And indeed, up to and until the FX strength starts to weigh, the econ data will likely continue to paint a reasonably upbeat picture. Here are the Caixin Services and Composite prints, just out:

• Caixin China Aug. Services PMI 52.7 vs 51.5 in July
• Caixin China Aug. Composite PMI 52.4 vs 51.9 in July

And cue the quick snapback in the offshore yuan, which partially erased the losses mentioned above…

…. before ultimately drifting back lower:

Oh, and finally, when you read everyone trying to make sense of the liquidity situation, do note this:

• PBOC GAUGED DEMAND FOR ONE-YEAR MLF FUNDS: TRADERS