China is the biggest holder of reserve assets in the world, holding a combination of bonds, currencies and commodities like gold. It held $1, 271 billion in U.S. Treasurys at the end of June, according to data from the Treasury Department. Chinese officials have been busy trying to manage the downward pressure on the yuan since Beijing announced a currency devaluation on August 11.
"The obvious conclusion here is that PBoC (People's Bank of China) selling is bearish. However, this could be wrong in precisely the same way investors tend to mistakenly believe QE (quantitative easing) purchases are bullish," the bank said in a note on Friday morning.
Nonetheless, Rabobank added that if China continued to push its currency lower, than other countries, most especially in Asia, would move to depreciate their own currencies. This could mean aggressive buying of dollar-denominated assets as their central banks try to push the dollar higher against the domestic currency—although this would be the reverse of China's current strategy.
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