After China's Golden Week holidays next week, the onshore unit is poised to move onshore after trade resumes. According to Bloomberg, this is expected to ease pressure on the central bank to defend the currency.
What Happened: Offshore yuan, which was trading close to the 7.14 mark against the dollar on September 30, has risen to the 7.048 level as of Thursday. The onshore unit is expected to surge when it opens for trading, as mainland China markets have been closed this week because of the Golden Week holidays.
As traders consider the possibility of the U.S. Fed winding down its hawkish tone going ahead and the one-way dollar rally coming to a halt, the People's Bank of China could see some pressure on its defenders against the dollar, as they consider the possibility of the U.S. Fed winding down its hawkish tone going ahead. The country's easy monetary policy stance coupled with the rising risk of deflation could prove challenging, according to the Bloomberg report.
He said that the yuan will be under pressure this year, as the dollar dominance is set to continue.
Why It's Important: After the onshore yuan fell to its lowest level since 2008 and the offshore unit depreciated to the weakest in data going back to 2010, the PBoC has announced a string of stronger than expected yuan fixings to stem the losses. The central bank has a risk reserve requirement of 20% on currency forward sales by banks that made it more expensive to short the yuan, according to the report.