From the SMH blog comes a nice little post on the progress upwards (or should that be down) of the Chinese yuan:
China’s yuan has tumbled to its lowest since August on speculation the central bank wants an end to the currency’s steady appreciation to ward off speculators before a possible widening of the trading band.
The yuan has fallen 0.24 per cent to 6.1131 per US dollar, sliding for a sixth day, according to China Foreign Exchange Trade System prices. The spot rate was 0.09 per cent stronger than the central bank’s reference rate, which was raised 0.01 per cent to 6.1184 today. The onshore spot rate is allowed to diverge a maximum 1 per cent from the daily fixing.
We can’t be sure that the weakness in the currency is the result of policy intervention, but we can be fairly sure, Capital Economics says in a note:
- The recent abrupt fall … is best seen as a salvo in a battle between policymakers who believe that China’s currency is close to its fair value and market participants who don’t.
- Fundamentals support those who expect further appreciation over the medium term. But given the People’s Bank’s stance, there will be volatility along the way.
‘‘The persistent slide in the CNY and CNH has so far been shrugged off by other EM currencies, even those in Asia,’’ Barclays said in a note. ‘‘However, we are a little more uneasy about the move, as it could signal a shift in official stance rather than just a technical/or stop loss-driven move.’’
UBS said yesterday recent depreciation may suggest the PBOC is shifting away from allowing a steady pace of gains and this may lead to a reversal of “hot money” inflows.
China may double the yuan’s trading band to 2 per cent in two to three months, JPMorgan Chase & Co. economist Zhu Haibin said in a note yesterday, adding that yuan declines will likely be moderate and temporary.
