Hedge Funds Yuan Battle With China Heats Up

As far as financial market duels go, China versus some of the world’s most storied hedge funds is as big as it gets.

Money managers making bearish bets against the yuan, including top investors Kyle Bass, David Tepper and Bill Ackman, are pitted against Chinese policymakers who are trying to manage a more orderly decline of the currency, the Wall Street Journal (WSJ) reported at the weekend.

According to the WSJ report, some of the traders are penciling in a decline in the yuan of as much as 40 percent.The currency has already fallen about 5.6 percent against the dollar since August, when a sharp devaluation by the People’s Bank of China (PBOC) roiled markets, to trade at 6.5790 on Monday.

Which side wins control of the yuan’s direction will have a profound impact on global financial markets as well as the well-being of countries that have benefited enormously from the frenetic growth in the Chinese economy.

The yuan has been hammered in recent months by a confluence of factors. China’s once booming economy is now growing at its most feeble pace in a quarter of a century and capital outflows have accelerated. The PBOC is lowering borrowing costs just as the U.S. Federal Reserve has begun lifting interest rates.

And because the yuan, or renminbi as it’s also known, is tethered to the greenback, it has gained against peers such as the Japanese yen, despite falling against the dollar itself.

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