US Federal Reserve is likely to hold rates at it Sept meeting but may set the stage for a rate hike in December, providing support for the US dollar and adding depreciation pressure for the yuan.

People’s Bank of China is likely to have intervened to raise overnight borrowing costs over the last week, pushing up the cost of betting against China’s currency and limiting its depreciation ahead of the CNY’s inclusion in the special drawing rights (SDR) operations set to begin on October 1. PBoC however, doesn’t confirm its interventions in the market.

CNH funding costs touched an eight month high of 23.3 percent on Monday, but have started to drop this morning, with overnight HIBOR fixing at 12.1 percent. In the meantime, CNY-CNH spread narrowed significantly after the new round of PBoC intervention, which is in line with China’s interest to maintain favourable market conditions ahead of CNY’s SDR inclusion.

“We believe that the HKMA might have injected CNH liquidity to smooth out market volatility. However, China’s central bank would tend to keep the cost of funds at a relative elevated level, at least before the SDR inclusion on 1 October, to force shorting-CNH positions to unwind.” said Commerzbank in a report.