Commerce is bracing for more pushback from China’s Central Bank as the yuan is nearing its lowest level in 14 years. The onshore yuan has lost about 4% over the past month, trading within 1% of 7.2 per dollar, a level it hasn’t reached since 2008.
The People’s Bank of China has already stepped up its currency defence, but this did little to stop the depreciation. Breaking the psychologically important level may prompt officials to take more measures to slow the depreciation. These measures would be aimed at discouraging capital flight and keeping financial markets stable.
Possible counter-attacks include delivering stronger yuan fixes, adding more onshore dollar supplies and squeezing offshore yuan funding to make it more expensive to short the currency, analysts say.