The point: Beijing is already predisposed to intervening in markets to offset any turmoil a sovereign downgrade might catalyze and you can bet that predisposition is stronger than ever ahead of the Party Congress.
Well, the timing leaves something to be desired.
That’s cause for concern. Given that the country is the engine of global growth and trade, you don’t want to see the brakes slammed on. That said…
I’m not sure it will ultimately be enough to get the job done, all things considered, but the PBoC’s decision to effectively remove a barrier to speculation against the yuan (that’s a crude way to describe it, but it gets the point across) by cutting a reserve requirement put in place in the days following the devaluation in 2015 seems to have succeeded in putting the brakes on the rally – if only for a day.
“None more so than the Chinese Yuan. Although most hedgies were all betting on a massive decline, the Yuan has been strengthening like Lance Armstrong after visiting his bio-chemist.”
“The extremely bearish USD sentiment spilled over to the yuan market, and fixing failed to cool down bullish sentiment,” Ken Cheung, a senior currency strategist at Mizuho Bank in Hong Kong notes, adding that “heading to the weekend, risk-off sentiment due to the foundation day of North Korea also raised safe-haven demand for the yuan.”
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.
Meanwhile, you already know the story with the offshore yuan. And that story hasn’t changed. In fact, the offshore yuan rose against the dollar for a 14th consecutive session on Monday – that’s the longest streak on record.
Now admittedly, “2” is a small sample size, but…
6.50 doesn’t look far-fetched – at all.
And to let Jitipol Puksamatanan – a Bangkok-based strategist at Krung Thai Bank – tell it, the only thing that’s going to stop this train is war.
Boy, I’ll tell you what, the yuan has got come serious momentum.
“…this wouldn’t be the worst time to create some renewed depreciation.”
“There are roads which must not be followed, armies which must be not attacked, towns which must not be besieged, positions which must not be contested…” – Sun Tze, The Art of War