Oct 7 (Reuters) – Chinese markets reopen after a week-long break on Thursday, and officials may not react well to what the offshore yuan has been up to in the meantime .
The CNH extended its rally from Sept 30 to notch a 17-month peak on Monday, gaining as much as 1.3% against the USD. Beijing might want to dampen such rapid appreciation in the yuan as the economy recovers .
The People’s Bank of China has several tools to wrestle the yuan back to the ground. The opening salvo Thursday could be via strong adjustment of its daily yuan benchmark.
Direct FX intervention is possible, but that would be too forceful and probably trigger a vigorous knee-jerk exit from the yuan, which would be contrary to Beijing’s goal to internationalise the currency.
There’s a more subtle way to tap the brakes on the yuan – through the forwards market. Authorities could soak up liquidity to shift the forward pricing curve, making it less appealing to hold the offshore yuan.
Or China could just step back and allow U.S. President Donald Trump’s tantrums , which are likely to escalate as the election draws nearer, to whittle the yuan index back down from its 200-week moving average .
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(Ewen Chew is a Reuters market analyst. The views expressed are his own.)
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