PBOC Ready to Act if Yuan if Market Moves Call for Intervention

A spike higher in the offshore yuan following suspected rare intervention by Chinese state banks is expected to be short-lived, especially with a looming U.S. interest rate rise likely to add to the attraction of owning dollars.

But those betting on a further depreciation in the yuan are likely to have only limited room to push the offshore rate down relative to the onshore rate without drawing the ire of the Chinese central bank and the risk of further state intervention, market sources said.

“The central bank will not stand aside if depreciation expectation is formed again and more intervention may happen,” said a Hong Kong-based currency trader, who declined to be identified.

The offshore yuan CNH=D3 shot up by more than 1 percent on Thursday on suspected intervention that was seen by traders as a gesture by authorities to shake out speculators betting against the yuan.

Authorities have spent the country’s foreign exchange reserves heavily to hold the yuan steady onshore since a surprise devaluation in August prompted fears the Chinese economy was in worse shape than previously thought and that the yuan therefore could fall further.

via Reuters

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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