The currency devaluation has been a source of concern for investors as Chinese authorities tighten capital controls, curbing the purchase of outbound assets by restricting portfolio and foreign direct investment. There will also be greater scrutiny of high-value deals by the State Administration of Foreign Exchange (SAFE).
Outbound investment deals reached US$530.9 billion in the first nine months of the year, according to Thompson Reuters data.
“In the face of the recent wave of yuan depreciation, regulators have stepped up capital control measures by introducing a new policy directed a curbing Chinese investors’ portfolios and foreign direct investment from feeding the frenzy,” Stephen Innes, senior trader at Canada-based OANDA, said in a morning note.
Currency traders are cautious as the US dollar continues its bull run and interest rate yields rise.
The Opec deal to cut oil production, announced on Wednesday, pushed US Treasury yields higher as inflationary expectations grew, according to Innes.
“Coupled with stellar US economic data, it lit a fire under the USD,” he said.
The sell-off of the yuan and other emerging market currencies will intensify as a result, Innes said, which will accelerate mainland demand for US dollars.