Quotes from Barclays Capital:
-The yuan has come under greater selling pressures of late, as markets seem more concerned about a shift in FX policy amid slowing growth and a strong USD. At about 6.2250, spot USDCNY is now ~1.7% above its latest mid-rate fixing, or a mere 0.3% from the upper bound of its +/-2% band. This deviation is wider than that in April this year after China abruptly turned fixings around.
-Meanwhile, a CNH implied yield at more than 5% (similarly for onshore CNY) is the highest level since the CNH market started in 2010, reflecting tight funding conditions and increased risk premium. However, recent commentaries in government-linked local newspapers suggest that a sustained period of yuan depreciation would likely not be tolerated by policymakers and that monetary policies would be formulated not to exacerbate downward pressures on the CNY, even though the government does not mind occasional bouts of currency weakness.
-As such, we believe that amid growing pressures on spot CNY, authorities will likely attempt to keep CNY fixings broadly stable or stronger in the coming weeks, especially if the trade surplus comes in wider than expected.
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