Yuan jumps to 3-month high as central bank intervenes to squeeze currency bears
Analysts think the strengthening in the yuan’s exchange rate is a ‘warning’ to short sellers from the Chinese central bank
The Chinese yuan rose sharply on Friday in the offshore market, hitting its highest level in three months, as traders suspected the People’s Bank of China (PBOC) had intervened to prop up the currency and squeeze short sellers to defy the downgrade of China’s credit ratings by Moody’s Investors Service.
In Hong Kong, the US dollar lost as much as 219 basis points against the offshore yuan, trading at 6.8271, the worst level since February. By 6pm, the US dollar bought 6.8281 yuan, down 0.3 per cent from 6.849 late Thursday.
The spot yuan also advanced in Shanghai. The US currency traded at 6.8618 per yuan at 6 pm, down 0.1 per cent from 6.8685 late Thursday.
“In defiance to the Moody’s downgrade, the state-owned banks are big sellers of the dollar as the PBOC wants its currency strong and stable,” said Stephen Innes, senior trader at Oanda Asia Pacific.
The PBOC typically uses state-owned banks to intervene in the market and influence the yuan’s value.
On Wednesday, Moody’s Investors Service downgraded China’s credit rating for the first time since 1989, citing the country’s worsening debt outlook. Hours later, it cut Hong Kong’s credit rating by one notch, saying credit trends in China will have a significant impact on Hong Kong given its close economic, financial, and political ties to the mainland.