The yuan was headed for a record gain in the freely-traded offshore market, spurring speculation China’s central bank intervened to deter bets against its currency.
The yuan strengthened 1 percent to 6.4013 per dollar as of 6 p.m. in Hong Kong, poised for the biggest one-day advance since offshore trading began five years ago, according to data compiled by Bloomberg. The currency closed little changed in Shanghai at 6.3772 and its discount in the offshore market shrank to 0.4 percent from 1.4 percent.
“There is talk of intervention driving the offshore yuan,” said Khoon Goh, a Singapore-based strategist at Australia & New Zealand Banking Group Ltd. “It would seem that they are trying to dampen depreciation expectations and drive a narrowing of the onshore-offshore spread,” he said, noting that it is unusual for the People’s Bank of China to intervene outside of the domestic market.
Since devaluing its currency a month ago and shifting to a more market-oriented exchange rate, China has been intervening to limit depreciation — a policy that led to an unprecedented $94 billion drop in its foreign-currency reserves in August. The yuan will be kept stable at a reasonable level, Premier Li Keqiang said on Thursday at a World Economic Forum meeting in the Chinese city of Dalian, while announcing that foreign central banks would be allowed to trade in China’s domestic currency market.
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.
Dean Popplewell
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