Despite the weakness in onshore and offshore yuan after the PBoC Friday fixing at above 6.8/USD, there is no cause for alarm. The current situation is quite different from that in April, when 6.40 broke. Yield differentials between China and the US have not been falling as precipitously and have even been stabilizing at the longer tenors of late. We doubt that the FX market expects another sequential contraction in China’s economic activity now that monetary and fiscal policies are turning more proactive ahead of important political events in 4Q. - HSBC FX Strategy
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