PBOC steps up intervention to slow renminbi decline

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The Peoples Bank of China has stepped up efforts to defend the renminbi. The Chinese currency has been declining off the back of poor economic data and woes in its property sector. This includes a weakening in exports and fragile consumer confidence.

The action comes after the onshore yuan dropped to a 16-year low against the dollar on Wednesday. The slide in the renminbi intensified after surprise rate cuts by the PBOC on Tuesday. Moreover, state banks have been buying renminbi and selling dollars to prop up the domestic currency.

Typically, the PBOC sets a daily midpoint for the renminbi, and the currency is allowed to fluctuate 2% in either direction. Today, the central bank set the midpoint at 7.2006 against the dollar. This was more than 1,000 points stronger than Reuter's estimate of 7.3065 to the greenback.

Despite the intervention by the central bank, the currency is likely to remain under pressure due to growth and financial risk concerns. In addition, the difference between the US/China 10-year bond spread has accelerated which is contributing to renminbi weakness:

Source: www.tradingview.com

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Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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