The People's Bank of China has injected CNY 160bn through 7-day reverse repos today in the morning.  Moreover, in a bid to cool the market fears, the central bank sent USD-CNY fixing rate 14pips lower. However, there were stronger short CNH flows in the morning today, on par with a risk-off sentiment throughout Asia. The recent HKD weakness also suggests a certain amount of capital outflows from the Greater China.

The country's 10-year government bond yields declined to 2.7% today in the morning. This suggests that the market anticipates additional easing of the monetary policy, such as cut in RRR, before the Chinese New Year. It will be difficult for the Chinese authorities to deliver an easing policy mix while handling a stable currency.

"Overall market sentiment remains depressed in China", says Commerzbank.