FOREX 3 minutes to read

Chart of the Week: Yuan fixing

Christopher Dembik

Head of Macro Analysis

Summary:  The People's Bank of China cut the yuan fixing by 42 pips to 6.7954 per USD today, which is the lowest level in the past three months


Click here to download this week's full edition of Macro Chartmania.

One day earlier, the yuan fixing was at 6.7912. The PBoC's move tells us a lot about the current state of the US-Chinese trade war. Since negotiations started, at Saxo, have considered that the yuan fixing is the right proxy to understand how short-term negotiations are going.

Things haven't gone very well lately and, as expected, Beijing’s first answer to the US tariff costs 25% increase was to depreciate its currency. In the short-term, coupled with a strong credit flow, it should bring some relief to the Chinese economy since it will limit the erosion of export price competitiveness.

China still has room to let the CNY depreciate further, in case there is no diplomatic improvement with the United States, but it is unlikely that we'ii reach the psychological threshold of 7.00 that is often discussed by investors. In our view, the bottom line is that China cannot allow too much FX weakness as this would hurt local firms that have profits in CNY and a huge amount of debt in USD to refinance in coming months (short-term external debt is about 1.3 trillion USD). Again, this is fine-tuning policy at best.

Disclaimer

Saxo Capital Markets (Australia) Pty Ltd prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Combined Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)