The move has been clearly communicated by Chinese officials since last week as they started to draw the line on yuan weakness and even decided to cut the FX reserve ratio to try and shore up the yuan a little when it was trading closer to 6.90 on the dollar. But the daily fixing does sort of give it away and lack of firm intervention i.e. state-owned banks selling the dollar during the day, indicate that the hard line is seen closer to 7.00 rather than 6.90 at the moment.
That is precisely what we're getting with USD/CNY trading to near 6.98 while the offshore yuan even hit 6.99 earlier in the day against the dollar. As this continues to play out, it's a rough development for emerging markets as well as risk currencies and the antipodeans have also suffered somewhat as a result. I highlighted three weeks ago how this will be a key trigger for the next leg higher in the dollar and it certainly has been the case.
