A historic rally in China’s renminbi halted on Monday after the country’s central bank cut the cost of betting against the currency in the wake of last week’s biggest daily gain in a decade and a half, reported the Financial Times.
The onshore-traded renminbi fell as much as 0.9% to RMB 6.754 against the dollar — its biggest drop since the market tumult of March — after the People’s Bank of China announced on Saturday that lenders would no longer be required to hold reserves when buying foreign currency forward contracts, said the FT.
The move from the PBoC suggests that while authorities will tolerate some strength as the renminbi’s global role grows, they remain uncomfortable with sharp rallies that could threaten China’s economic recovery — a particular risk if the US presidential election yields a win for challenger Joe Biden, whose rhetoric towards China has been far less strident than Donald Trump’s.
“The PBoC took a pre-emptive action to slow the pace of renminbi appreciation,” said Ken Cheung, chief Asian foreign exchange strategist at Mizuho Bank. The step was designed to bolster support for China’s economic recovery from coronavirus, he added.