Chinese 100 yuan banknotes are seen on a counter of a branch of a commercial bank in Beijing, China, March 30, 2016. Yi outlined sweeping plans Sunday to rein in rising debt and financial risk, but expressed confidence that Beijing can prevent potential dangers. And ultimately, unless there's compromise in the trade dispute, the yuan should remain under pressure.
The market was caught in the well oversold territory after the PBoC, for the time being, stemmed the relentless USA dollar rally after avowing to keep the RMB exchange rate stable.
The yuan's weakening has reflected the narrowing spreads between interest rates of China and the U.S., and an overly depreciated yuan will bring no benefit, Tai said.
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China's yuan dipped past 6.7 per dollar on Tuesday for the first time in nearly a year, and stocks stumbled anew as Beijing and Washington hurtled toward an end-of-week deadline that would trigger tariffs on goods going both ways. China and Russian Federation are planning to launch settlements in ruble and yuan, bypassing the dollar and other Western currencies.
The Chinese yuan surged against the dollar on Wednesday, continuing a recovery that began the previous afternoon after China's central bank chief pledged to keep the exchange rate "basically stable". "We are paying close attention to this".
China's state-owned banks have reportedly been buying USA dollars in forwards on behalf of the central bank (PBOC) and immediately selling them into the spot market to support the yuan.
In August past year, 6.7 was the level around which the Chinese authorities relaxed restrictions on the yuan, a move that was followed by a gradual appreciation over the next eight months.
While some of the depreciation has been a result of a greenback rally, Citigroup's top China economist, Li-Gang Liu, said there is also evidence officials have "tolerated the depreciation beyond its own stated exchange rate policy". The move is expected to release more than $100 billion in liquidity. Beijing has promised to retaliate with tariffs on U.S. products.
Kojodjojo noted that in an environment where China is already seeing its current account surplus thin, this could tip its balance of payments into a "notable" deficit.
Fears over a slowdown in the country's economy and the start of a trade war with the United States have been weighing on Chinese shares and the yuan.
Liu said a depreciated yuan could also give life to industries China has been trying to reduce overcapacity in, often those which are labor-intensive and highly-polluting. It's just not 1MDB hotting up, but with ex-PM Najib Razak reportedly arrested, this investigation could open a massive can of worms, as this probe and ensuing court battle could run deep, while exposing an underbelly of corruption, bribery and government fraud. -China trade tensions may pose a risk.
Macquarie's Larry Hu and Irene Wu wrote in a recent research note that the People's Bank of China might have chosen not to intervene as part of a deleveraging campaign.