Chinese Yuan Gains As PBoC Pumps More Liquidity Into System

The  Chinese yuan is continuing its gains against the  US dollar to  kick off the  trading week. The  yuan’s strength was buoyed by  the  central bank pumping more liquidity into the  system and  leaving interest rates unchanged for the fourth consecutive month. After breaking below the seven against the greenback, the yuan has been steadily testing 6.9. How much better can it get for the currency?

On  Monday, the  People’s Bank of  China (PBoC) confirmed in  a  statement that it would roll over maturing $100.74 billion in  maturing one-year medium-term lending facility (MLF) loans to  banks. The  PBoC kept these medium-term loans at  2.95%, which has been the  rate since April.
Officials note that the  rollover was an  isolated MLF operation for  the  entire month to  meet market demand. They also confirmed that it had injected an  additional $720 million through seven-day reverse repurchasing agreements, as  well as  keeping the  borrowing costs low.
This comes as  PBoC head Yi Gang told the  press that the  central bank will be tapering its ultra-aggressive campaign to  support the  world’s second-largest economy due to  better-than-expected data.
Meanwhile, analysts are anticipating that the  central bank will leave the  nation’s benchmark loan prime rate (LPR) unchanged on  Thursday since the  MLF is its guiding market mechanism.
Despite lamenting on  central banks’ quantitative easing (QE) efforts in  recent months, has the  PBoC emulated a  government bond-buying program? According to  the  new China Central Depository & Clearing data compiled by  Bloomberg, the  central bank might have acquired government bonds from domestic financial institutions last month. The  numbers revealed that sovereign bonds held by  â€œother” investors, which includes central banks, climbed by  about $28 billion to  $260 billion last month.
Analysts think that if the  PBoC did execute this trade that it was part of  its efforts to  â€œdirectly finance the  real economy.” Others say that foreign central banks may have been the  culprit by  tapping their currency swap agreements.
In  other news, the  central bank is continuing to  push greater adoption of  the  yuan in  international markets to  facilitate more trade and  investment in  global commerce. Authorities presented the  initiative in  the  latest annual RMB Internationalization Report, officially adding to  previous comments earlier this summer when officials recommended an  increased prevalence for  the  yuan in  cross-border trade.
The  USD/CNY currency pair fell 0.18% to  6.9375, from an  opening of  6.9503, at  13:11 GMT on  Monday. The  EUR/CNY dipped 0.09% to  8.2241, from an  opening of  8.2316.
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