PBOC relaxes FX policy, to mark bottom in USD/CNH? - ANZ

The PBoC announced it will relax its foreign exchange policy, effective Sept 11. According to Con Williams, Rural Economist at ANZ, the move could mark the bottom for USD/CNH. 

Key Quotes

The PBOC will relax its FX policy by cutting the 20% FX margin requirement for financial institutions when buying USD to zero, and also eliminate onshore agency banks’ need to establish a dedicated reserve account for withholding the deposits placed by the offshore banks. The change is expected to take effect on September 11.

This could mark the bottom for the USD/CNH, which has depreciated nearly 6% since May and also supported the NZD. Chinese authorises put in place the reserve requirement in October 2015 to restrict USD purchases when the yuan was weakening.

The removal potentially makes it easier for traders to purchase the USD, easing the pressure for yuan appreciation. The change likely signals some discomfort of the stronger yuan impacting Chinese exports. For New Zealand, it has no doubt been supporting purchasing power and the price of a range of key commodities.