Capital Outflows amid Yuan Currency Conundrum

On Tuesday the PBOC, China’s central bank, set the yuan reference point against the US dollar at 6.8779 basis points or 0.26 per cent stronger than Monday’s 6.8985.

Traders are allowed to trade up to 2 per cent either side of the reference point for the day.

The bank had lowered the rate for 12 consecutive trading days since November 4, and on Monday the yuan sunk to a fresh eight-year low.

Stephen Innes, senior trader at OANDA, said broader US dollar moves continued to drive the underlying momentum.

“After reaching eight-year lows as capital outflows accelerate in the face of a steeper US yield curve, the yuan will continue to be pressured and will likely see some form of intervention to stem the current tide of capital outflows,” he said on Tuesday.

He said there was some discussion that the central bank should accelerate the yuan depreciation and abandon foreign exchange market intervention so that the market could determine the real yuan value.

“At this stage, mainland capital markets are not mature enough to withstand the financial instability of such a move, and the People’s Bank of China will continue their primary task to maintain stability.”

South China Morning Post

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Senior Currency Trader and Analyst at OANDA
Stephen has over 25 years of experience in the financial markets and specializes in Asian currencies at OANDA. After having started his trading career with NatWest Bank, he is currently based in Singapore as a Senior Currency Trader and Analyst with OANDA, focusing on the movement of the Aussie Dollar and ASEAN Currencies. Stephen has an extensive trading experience in Interest Rate Futures, Money Markets and Precious Metals. Prior to joining OANDA, he worked with organizations like Cambridge Mercantile, Nat West, Garvin Guy Butler, Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes
Stephen Innes

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