USD/CNY has gapped up at the open to the highest level this year at just under 6.83. Economists at Commerzbank believe that a weaker yuan will weigh on the rest of Asian currencies.

PBoC to keep a close eye on the pace of depreciation

“We could be seeing the start of an ‘all-of-government effort’ to support growth, namely increased government infrastructure spending plans, lower rates, and a weaker CNY. However, on the covid-zero policy, we suspect there won’t be a change this side of the Party Congress in October.”

“Although People’s Bank of China (PBoC) is seemingly accepting and acquiescing to a weaker CNY, it will continue to keep a close eye on the pace of depreciation.”

“For the rest of Asia, a weaker CNY will have ripple effects and weigh on the rest of Asian currencies. As such, the rest of Asian central banks would have to prepare for another a bout of volatility.”