China's offshore CNH is trading down at the lower limit of the Yuan's 2.0% trading band; How will the PBOC respond this week?
- Due to Chinese holidays at the end of last week, the last PBOC Yuan fix was on Wed, Apr 3rd and was set at 7.0949
- USD/CNH last traded at the end of the week ~7.24, right at the bottom of the PBOC's 2.0% trading band limit. - China's PBOC has been consistently setting strong fixes in the 7.09 range recently, but it has not stopped the Yuan falling to its lowest allowable limit.
- How will the PBOC respond to avoid the 2.0% limit being breached? State-owned bank intervention to sell dollars and buy Yuan is likely, however the PBOC may be forced to set a weaker fix this week than it would prefer in order to keep within the band.
- The other alternative is to increase the trading band beyond its current 2.0% limit, a move that would likely create volatility.
- Today's Yuan fix (Monday Asia time) will be at Sunday 21:15ET / 01:15GMT
- As always, monitoring AUD/USD and JPY/USD as proxies for USD/CNH is also recommended.