Chinese Yuan dropped to the low end of the trading band20 July, 2012, 18:35. Posted by Zarathustra
Earlier today, the Chinese Yuan was traded at 6.3743, 1% weaker than the PBOC daily fixing of 6.3112, i.e. the upper limit of USDCNY trading band. This was the first time that USDCNY reached the trading limit since the PBOC announced widening the trading band from 0.5% away from the fixing to 1% away from the fixing. Meanwhile, the offshore USDCNH is traded at 6.3698, that means offshore Chinese Yuan is at a slight premium relative to onshore USDCNY.
As mentioned a number of times, recent economic slowdown of China has changed the capital flows from consistently large inflow to occasional outflows. On top of that, we noted that corporate China has been short the US dollar, and is currently covering the shorts and accumulating as much US dollar as practicable, as manifested in the surge in foreign currencies deposits. Lower demand for Chinese Yuan should mean further weakness, and we believe the authorities will be happy to see some weakening amid economic slowdown.
The chart below shows USDCNY. As you can see, Chinese Yuan has obviously peaked, and is weakening slowly against the US dollar.