The PBoC’s fixings over the past month continued to signal that the currency stability objective, which has featured prominently in the past few years, remains securely in place despite the trade war.
During the peak of the depreciation pressure in April, the PBoC only set a small move higher in the fixings, and set the countercyclical factor near historic highs in early-mid April. While the USD/CNY fixing was set above 7.20 for the first time since 2023, it peaked at a little over 7.21, showing limited tolerance for a weaker yuan.
There has been much speculation in markets that China would intentionally devalue the yuan to help offset tariffs. We’ve been repeatedly arguing against this since last year, and the developments of the last month appear to be proving us correct on this front.
As we saw from the whirlwind escalation of tariffs to 145%, intentional devaluation would have been ineffective, as there’s no real ceiling on how high tariffs could go, and intentional devaluation would have been met with further tariff hikes. A 5, 10, or even 20% devaluation would’ve done little to offset 145% tariffs and would also have significant implications on purchasing power, confidence, and RMB internationalisation goals.
With official communication continuing to emphasise currency stability and action backing it up, we see little reason this will change.
