RMB: likely to continue to experience significant downward pressure in the short term

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The People’s Bank of China may step up efforts to prevent the yuan from weakening sharply.

In the short term, the RMB may still face enormous downward pressure.

The People’s Bank of China may step up efforts to prevent the yuan from weakening sharply. Last week, the central bank announced a strong midpoint, sold bills in Hong Kong to absorb offshore yuan liquidity, and directed state-owned banks to step up intervention in both onshore and offshore markets.

As the USD/CNY rises above 7.30, the PBOC may cut the RRR for FX deposits to increase onshore USD liquidity and/or increase the RRR for FX forward sales risk to increase the risk of shorting the RMB cost.