Chinese state banks have been supporting the Yuan, according to sources cited by Reuters. State banks often act on behalf of the PBoC in operations managed float currency regime.
The said banks reportedly conducted large amounts of buy-sell swaps in the onshore market no Tuesday, which has the effect of reducing available dollar supply for shorting the yuan. The PBoC today set the official midpoint of USDCNY at 6.9996, which an 11-year high for the fixing (in free trading the yuan has traded below the politically-sensitive 7.000 level).
S&P Ratings stated that it thinks that China will “manage the pace but not the direction of change” in the Chinese currency. China has a keen interest in not allowing the yuan to drop sharply, which could spark destabilizing capital outflows.
Beijing maintains, not unreasonably given the slowing in the Chinese economy (now growing at its slowest pace in three decades) and underperformance of China’s stock markets, that the decline in the Yuan has been market driven. Beijing appears to be playing the long game, and President Trump has tacitly admitted that a trade deal is not likely until after the presidential elections in 2020. Trump will be aware of the impact of this trade warring, which is popular in the US, and not just amongst his base, on the economy and Wall Street, and this may curtail the extent to which he will push it with China.
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