Although the Chinese central bank's fixing today would suggest a slightly stronger CNY against the US dollar, the CNY is once again slightly weaker than yesterday. This continues a trend that began last month. While the central bank's fixing has been pointing to a slightly stronger CNY for a few weeks now, the USD/CNY exchange rate has moved somewhat away from the daily fixing by the Chinese central bank and has recently tended to move sideways.

Chinese government might continue to prefer a slightly weaker CNY

"Following Donald Trump's election as US president last November, the USD/CNY exchange rate had already moved significantly away from the daily fixing and tended to remain at the upper end of the band for quite some time. This only came to an end in May with the truce in the tariff dispute with the US, whereupon the CNY appreciated against the US dollar and returned to the fixing. Recently, however, the CNY has shown some weakness again compared to its fixed value. The difference between the exchange rate and the fixing has therefore risen to 0.6% recently, after being less than 0.1% at the end of June."

"It is somewhat unclear what exactly is behind this renewed deviation from the daily fixing. The Chinese economy's high trade surplus and signs that capital inflows have recently picked up again would actually argue in favour of an appreciation of the CNY. On the other hand, however, it could also be that the exchange rate reflects renewed uncertainty about how the tariff dispute between the US and China will continue. The current truce expires on 12 August, and it is not yet certain what will happen after that. Donald Trump recently hinted that China could be hit with further tariffs."

"The renewed difference between the USD and CNY therefore shows, on the one hand, how fragile the current situation between the US and China is. On the other hand, it shows that the Chinese government would probably continue to prefer a slightly weaker CNY if in doubt."