A gauge of trader sentiment toward China’s yuan has produced a bearish reading for a record 51 days, showing the limits of Beijing’s efforts to support its sinking currency.
(Bloomberg) — A gauge of trader sentiment toward China’s yuan has produced a bearish reading for a record 51 days, showing the limits of Beijing’s efforts to support its sinking currency.
The yuan has moved closer to the weaker end of its daily 2% band than it has to the stronger side in intraday trading since June 16, according to data compiled by Bloomberg. That’s the longest run with such a tilt since the People’s Bank of China began its daily fixings following its shock devaluation in 2015.
The PBOC is in a delicate position, where it’s trying to limit the yuan’s slide as it cut interest rates to support a faltering economic recovery. With a widening interest rate differential to the US, traders are gradually pushing the currency lower against the dollar despite measures by the central bank.
“Despite the persistently stronger-than-expected fixings and sporadic reported intervention by state banks, onshore spot has failed to converge toward the fixing level,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore. “The still strong US dollar, wide yield differentials in favor of the US, and ongoing investor concerns over the Chinese economy are keeping the yuan weak.”
The yuan traded as much as 1.6% weaker than the daily reference rate on Aug. 21, near the 2% threshold where liquidity tends to diminish. The central bank set the daily fix at 7.1811 per dollar Thursday, the strongest in over two weeks.
The currency was little changed at 7.2887, paring a marginal gain posted when China reported better-than-expected manufacturing activities.
The authorities have reinstated most of the tools they used in previously to buttress the currency, including stronger-than-expected fixings, tightening offshore yuan funding to squeeze traders with short positions, and prompting dollar sales by state-owned banks.
Despite all these efforts, the currency has sunk 5.4% this year, the worst performer in Asia after the yen.
With economists seeing more rate cuts, market watchers expect further yuan losses. Respondents to a Bloomberg survey published last week projected the offshore yuan will decline to 7.6 per dollar before year-end.
“The PBOC’s measures have been effective to stabilize the renmimbi market for now, but the overall outlook remains challenging,” Ken Cheung, chief Asian foreign-exchange strategist at Mizuho Bank Ltd. in Hong Kong, wrote in a client note, using another name to refer to the yuan.
Without a revival of housing demand, overseas investors’ confidence toward Chinese investments is likely to deteriorate further, resulting in mounting yuan depreciation pressure, he said.
(Updates with yuan fixing and China PMI data in fifth and sixth paragraphs)
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