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Chinese Yuan Extends Winning Streak, Tests 6.8 on Liquidity

September 14, 2020 at 17:02 by Andrew Moran

Various yuan banknotesThe Chinese yuan is extending its winning streak against the US dollar to start the trading week, driven by a liquidity injection and a recovering economy. A slumping greenback further contributed to the yuan’s ascent, allowing the currency to soon test 6.8, which would be the first time since June 2019.

On Monday, the People’s Bank of China (PBoC) announced that it injected a net $33.63 billion of liquidity into the nation’s financial system through open market operations. The objective was to ensure ample liquidity conditions for the fragile banking industry. For the week of September 7 to September 11, the central bank pumped $99.66 billion through reverse repo operations, as $66 billion in reverse repo agreements matured.

For 26 straight days, the PBoC has maintained seven-day reverse repos. The purpose has been to ensure market liquidity meets rising cash demand amid rising bond issuance.

Over the last month, Governor Yi Gang and his colleagues have promised to be more flexible and appropriate in its monetary policy efforts. Its long-term goal is to strike a balance between stabilizing growth and avoiding risks. The PBoC has noted that it does not intend to be any more aggressive in its stimulus and relief measures, signaling that it would taper its accommodation slightly next year.

Meanwhile, in other banking data, financial institutions’ assets swelled to $49.77 billion at the end of the second quarter, up 10% from the same time a year ago. According to an online central bank statement, the insurance sector’s assets climbed 12.7% year-over-year, but liabilities have increased by nearly 13% YoY.

On the data front, the National Bureau of Statistics’ house price index advanced 4.8% in August, which represents the slowest growth in home prices since May 2018. Analysts are blaming the disappointing numbers primarily by the COVID-19 public health crisis.

The USD/CNY currency pair tumbled 0.35% to 6.8105, from an opening of 6.8344, at 16:56 GMT on Monday. The EUR/CNY fell 0.21% to 8.0803, from an opening of 8.0936.

If you have any questions, comments, or opinions regarding the Chinese Yuan, feel free to post them using the commentary form below.

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