PBOC takes aim at yuan shorts, raises forex reserve requirement to 20 per cent after currency tumbles to 15-month low
PBOC boosts the reserve requirement on foreign currency forwards to 20 pc from zero, spurring offshore yuan 1 pc higher from its intraday low
The People’s Bank of China took action to defend against further currency devaluation on Friday, triggering a sharp rebound in the offshore yuan in evening trade after the currency eased to a 15-month low earlier in the day amid escalating trade tensions between Washington and Beijing.
The currency traded by international investors outside mainland China was at 6.8329 in evening quotes, up more than 1 per cent from its intraday low of 6.9122.
“The PBOC has led the yuan bounce. However, traders generally believe the yuan will continue to fall to the 6.8 to 6.9 level or it may even slip to 7 yuan per US dollar in the next few months or early next year,” said Martin Lam, chief analyst of Asia-Pacific of currency trading firm ATFX.
Stephen Innes, head of trading for Asia-Pacific at Oanda, said the PBOC cut the reserve requirement ratio for the forward contract in September 2017, when the yuan was considered too strong.
“This time around the rule is back in place in a move seen as an effort to restrict dollar purchases when the yuan was weakening. Universally traders would wholeheartedly agree this is a more favourable approach than overt intervention. Besides, this does suggest that the PBOC will refrain from using the currency as a ploy in trade war negotiations,” Innes said.
Despite Friday’s rebound, the offshore yuan remains at its lowest level in roughly 14 months, only slightly better than in the morning when it was trading at a level on par with mid-May last year.