With investor sentiment already frayed, China’s central bank, the People’s Bank of China (PBOC), has the potential to further complicate the picture today.
After seeing the US dollar index record it largest percentage increase since October 10, 2008 on Friday, markets will be playing close attention to the USD/CNY fix announced by the PBOC at 11.15am AEST.
The enormous US dollar gain could see the PBOC weaken the yuan by a similar margin.
Although a sharp increase in the USD/CNY rate is to be expected, one only has to look back to the early parts of this year – or indeed August last year when the PBOC announced a one-off depreciation in the yuan to conform to a new fixing mechanism – to see just how jittery such a move can make financial markets.
Here’s the daily chart of the USD/CNH, offshore traded yuan. It currently trades at 6.6451, the highest level since January 11 this year.
That, of course, was a period of immense market turmoil similar to what we saw on Friday following the UK Brexit vote.