Lower Yuan fix a setback for risk appetite

By FXStreet The higher USD/CNY fix by the PBOC today, coming at 6.5237 vs 6.5130 last fix, has sent risk assets into a tail-spin, as a lower Yuan fix is being perceived as desperation by the Central Bank to stimulate the economy amid collapsing trade figures last January, which at the same time may lead to an increase of capital outflows in China.

Risk aversion back in Asia

While some may argue the ‘risk-off’ swing post the PBOC fix may have been exaggerated, we are simply seeing the same dynamics in play during early January, that is, a lower Yuan resulting in growing market unrest. In Asia, since earlier this year, a new paradigm shift appears to have taken place, one by which a PBOC-manipulated cheaper Yuan sends a message of caution to global markets, with algos initially selling risk at 9.15GMT.

China to adopt more flexible FX regime again?

A spike in USD/CNH earlier today was an early warning sign that the PBOC may start to become more flexibly on FX regime policies.

One of the main reasons behind the consistent appreciation of the Yuan ever since the collapse in Chinese equities last January was an attempt by policy makers to stabilize the …read more

Source:: FX Street