Will the People's Bank of China push back more assertively against the weak yuan? via ForexLive

There is some talk in the markets that the People's Bank of China may push back against the weak yuan.

You can see in the chart the weakness in the CNH (the offshore traded renminbi):

USD CNH 31 January 2015

And the onshore (USD/CNY):

USD CNY 31 January 2015

The tight range on Friday on the USD/CNY hints (very strongly …) there may have been some intervention to keep it away from the upper boundary of the trading band.

Letting the CNY weaken too much risks a flow of capital offshore … which would in turn require a liquidity loosening from the PBOC, maybe even a reserve requirement ratio cut (which the bank has resisted, preferring targeted easings). It looks like the bank either must continue to intervene, ease further, or perhaps widen the trading band … that's the talk doing the rounds. If the bank intervenes more vigorously it would prompt an unwinding of some USD/CNH longs. But I have to wonder how successful they might be given underlying flows of capital offshore betting on a weaker yuan.

I really should note … talk of a PBOC RRR cut &/or band widening is not unusual on the approach to a weekend. Since the SNB shock, though, dealers are more reluctant to take the other side of trades taken over weekends …  call it recency effect if you like, but there you go.

posted via ForexLive

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