07-20-2018, 01:04 PM
We always surmised that the Chinese would use the yuan as a tool in the trade war with the US, and that indeed seems what's going on:
A slump in the yuan deepened on Friday after the central bank weakened its daily reference rate for the currency by the most in two years. The People’s Bank of China weakened the fixing by 0.9 percent to 6.7671 per dollar. While the rate was in line with the average forecast of traders and analysts in a Bloomberg survey, the yuan turned sharply lower after the move, sinking as much as 0.7 percent to 6.8367 per dollar in offshore trading before paring declines. Bets for further monetary easing and speculation the authorities are sanctioning the losses by not intervening have helped make the yuan the worst performer among more than 30 major currencies in the past month. The rapid descent has undermined confidence in other emerging market peers and helped fuel a plunge in commodity prices. "The Chinese authorities continue to refrain from active intervention," said Khoon Goh, Singapore-based head of Asia research at Australia & New Zealand Banking Group Ltd. "This suggests that they are allowing market forces to drive the currency and are not seeking to defend any particular levels. Markets will take this as a signal to continue to push the yuan weaker until there is firm signal from the authorities that they feel it has gone too far."
Yuan Nears `PBOC Put' Level That Could Help Markets, Nomura Says - Bloomberg
It isn't doing the Chinese stock market any favors though. And there are other explanations. They could simply be wary of how the PoB lost $1T in forex reserves in short order two years ago when actually trying to stem the decline of the yuan.