Yuan Depreciation Might Hint at Policy Change

The unusually sharp decline in the yuan in the recent days, which has caught many investors off guard, has given rise to speculation that a policy shift is taking place in the mainland.

The currency has depreciated 0.5 percent against the U.S. dollar over the past two weeks. It traded around 6.094 against the greenback on Monday, extending its worst weekly performance in more than two years, after the People’s Bank of China (PBoC) fixed the daily mid-point lower for a fifth straight session.

“Chinese officials have played down the drop in the CNY (traded onshore) and CNH (traded offshore) but nonetheless, markets are seeing it as a major shift in policy following recently weaker economic data,” said Mitul Kotecha, global head of currency strategy and global markets research for Asia at Crédit Agricole.

“By abruptly reversing the appreciation trend, there is a sense China wants to implement more two-way risk in the currency. They don’t want the market to see the currency as a one-way bet,” he said, noting that market positioning had become heavily long the currency. The yuan has attracted considerable foreign investor demand over recent years on its steady appreciation and relative stability.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza