The Chinese yuan remains subdued as the 10-year government bond yield has pulled back. While yields remained above the range it recorded since the beginning of the year, further declines could weigh on the currency.
Meanwhile, the PBoC injected 300 billion yuan into the banking system through its MLF operation, maintaining the interest rate at 2%.
With 500 billion yuan in MLF loans maturing this month, this move could limit liquidity to a certain extent, potentially supporting the yuan. A steady rate policy could also help reduce immediate depreciation pressure on the yuan.
However, economic risks could limit upside potential. In this regard, Beijingโs shifting policies could help restore business confidence and attract investment. A stronger private sector could provide support to long-term yuan stability.
External risks remain significant, with escalating U.S. trade restrictions targeting Chinese investment in key industries. Rising geopolitical tensions could weigh on the yuan by driving capital outflows.
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