21 Mar 2014
Is China weakening the Yuan as a hedge against slower growth?
FXStreet (Bali) - The latest episodes on Yuan weakness may reflect a sign of prudence as the Chinese economy shows slower growth, Reuters reports, citing government economists.
The USD/CNY and USD/CNH (offshore Yuan traded in HK) have both appreciated remarkably ever since mid February, with a sequence of higher fixes and an expansion of the USD/CNY trading band from 1% to 2% resulting in what seems to be a hunt on excessive Yuan long speculative positions. The market is concerned that the PBoC may continue to chase lower Yuan prices until 6.30 in USD/CNH, so that they can clean out a major portion of the speculative positions being held.
There is renewed talk in the market that anticipation of a possible failure by China to deliver on the pre-set 7.5% growth threshold may have forced officials to use a temporary depreciation of the Yuan exchange rate as a hedge to counter-attack the negative effects of slower growth.
The next big monetary policy decision, following the trading band widening, is removing the ceiling on bank deposits, although according to a senior economist at the Chinese Academy of Social Sciences (CASS), a top government think-tank, cited by Reuters, "that needs more preparations and it's unlikely to happen this year. "It could be at the last of the reform sequence, as the economy faces relatively big downward pressures," the economist added.
The USD/CNY and USD/CNH (offshore Yuan traded in HK) have both appreciated remarkably ever since mid February, with a sequence of higher fixes and an expansion of the USD/CNY trading band from 1% to 2% resulting in what seems to be a hunt on excessive Yuan long speculative positions. The market is concerned that the PBoC may continue to chase lower Yuan prices until 6.30 in USD/CNH, so that they can clean out a major portion of the speculative positions being held.
There is renewed talk in the market that anticipation of a possible failure by China to deliver on the pre-set 7.5% growth threshold may have forced officials to use a temporary depreciation of the Yuan exchange rate as a hedge to counter-attack the negative effects of slower growth.
The next big monetary policy decision, following the trading band widening, is removing the ceiling on bank deposits, although according to a senior economist at the Chinese Academy of Social Sciences (CASS), a top government think-tank, cited by Reuters, "that needs more preparations and it's unlikely to happen this year. "It could be at the last of the reform sequence, as the economy faces relatively big downward pressures," the economist added.