The PBoC adjusts the Reserve Requirement( RR) on FX Forwards trading from 0% (nil) to 20% but recall in Sept 2017 the RR was pulled when the Yuan was too strong this time around the rule is back in place in a move seen as effort to restrict dollar purchases when the yuan was weakening. Universally traders would wholeheartedly agree this is a more favourable approach than overt intervention. Besides, this does suggest that the PBoC will refrain from using the currency as a ploy in trade war negotiations.
And should be viewed as an excellent way to approach the recent Yuan sell off as opposed to overt intervention.
This move will shake out some weaker longs as the market may view the PboC line in the sand is around 6.90’s USDCNH, but it also has far-reaching consequences for long dollar positions across both G-10 and EM currencies which are cratering ahead of today NFP.
