Trend Reversal on Yuan unlikely

Central bank Deputy Governor Yi Gang said in an interview with Xinhua that the yuan is a “stable and strong” currency and its depreciation against the dollar was less than that of the Japanese yen or the euro.

It was widely speculated among traders that Chinese state banks, following the speech, intervened the foreign exchange markets by dumping US dollars to support the yuan.

Earlier this month, the central bank required commercial banks to stop issuing double-network payment cards. Meanwhile, China’s biggest bank card provider UnionPay decided to tighten regulations over how mainland customers can use its debit and credit cards to purchase investment-linked insurance products in Hong Kong, amid concerns that it had become a channel through which yuan was leaking across the border.

In addition, the foreign exchange regulator lowered the required the threshold for reporting overseas investments to one-tenth of its prior level. Where in the past foreign direct investment associated foreign exchange transfers of greater than US$50 million had to be reported, the new reporting limit has been cut to US$5 million.

In spite of these measures, the market is still dominated by expectations of continued depreciation.

In regards to equilibrium value, Hong said “it’s at least 7.5 per US dollar and could be even weaker.”

“Traders are tactically buying on dips as the US dollar’s bull trend remains intact,” said Stephen Innes, senior trader at OANDA.

“US interest rate yields are moving higher, so expect the yuan and the emerging market currency sell-off to intensify,” Innes said.

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.

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