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

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Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes