USD/CNY at 6.13 after Air Defense Zone Tensions

Yuan forwards traded 0.04 percent off a one-week low amid rising geopolitical tensions after China imposed a new air defense zone around disputed islands with Japan, a move that was rebuffed by the U.S.

China announced an air defense identification zone in the East China Sea effective Nov. 23 and said its military will take “defensive emergency measures” if aircraft enter the area without reporting flight plans or identifying themselves. U.S. Army Colonel Steve Warren told reporters at the Pentagon yesterday that U.S. pilots won’t comply with the order.

“While our central scenario remains for the situation to stay on the rhetorical level, the risk of actual incidents is on the rise and will make it difficult for the yuan to rise further in the offshore markets in the near term,” Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB, wrote in a research report today.

Bloomberg

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