CNY: Depreciation remains a key policy response - ING

In China, the PBoC set the USD/CNY fixing at 7.2066 this morning. This marks the fifth consecutive adjustment higher, reinforcing the view that a controlled weakening of the yuan (albeit not a devaluation) is part of China's policy response to tariffs, ING's FX analyst Francesco Pesole notes

Beijing is loosening its grip on the yuan

"USD/CNH spiked above 7.400 yesterday, with the CNH-CNY gap exceeding 1%. Chinese state banks reportedly stepped in by selling dollars against CNY, which prompted a rebound in the offshore yuan. CNH is now trading at 7.38 per $, 0.5% weaker than the onshore CNY."

"Despite the interventions by state banks overnight, it appears that the PBoC is still not overly concerned about the USD/CNH rally. Officials have the possibility of draining liquidity from CNH should they feel particularly uneasy about CNH volatility: that would show through a spike in short-term CNH-implied yield."

"The one-week yield is currently at 2%, well below the 5% peaks seen in recent instances. That again confirms that Beijing is loosening its grip on the yuan to absorb part of the tariff shock. A return above 7.40 in USD/CNH would be entirely in line with that approach."