China
announced a cut in its FX Reserve Requirement Ratio by 200 basis
points (bps) from 6% to 4% from September 15th.
What this means is that China
reduced the amount of foreign currency deposits banks are required to
hold as reserves. It
last did so in September of 2022 when the yuan was also being subject
to a bout of weakness. The cut is a visible
step to free
up dollar liquidity and prop
up the yuan. Last
week Nomura nominated the move as one that the People’s Bank of
China could take to support the yuan:
The
announcement prompted buying of yuan, and also AUD, NZD and JPY. AUD
and NZD have unwound the move while USD/JPY is still lower on the
session. USD/CNH is back to more or less unchanged also.
The
FX RRR cut was the big news of the session. We also had an upside
surprise for the Caixin/S&P Global August manufacturing PMI. It
leapt into expansion vs. the contraction that had been expected.
Other manufacturing PMIs from the region registered contraction for
the month.
Following
deposit rate cuts announced by some Chinese banks on Thursday more
followed on Friday.
The Hong Kong Exchange closed due to the impact of Super Typhoon Saola
Asian
equity markets:
-
Japan’s Nikkei 225 +0.6%
-
China’s Shanghai Composite +0.3%
-
Hong Kong’s Hang Seng 0% (Closed, see above)
-
South Korea’s KOSPI -0.1%
-
Australia’s S&P/ASX 200 -0.4%
Offshore yuan rose (USD/CNH dropped) on FX RRR cut announcement and then retraced: