After battle with yuan bears, China is now keen to avoid sharp currency gains
Repeats story from Friday with no changes to text
SHANGHAI, Aug 23 (Reuters) -Having spent all year trying to put a floor under the tumbling yuan, China's central bank is suddenly faced with the opposite problem and is turning to subtle ways to stop the currency from appreciating sharply.
The usually restrained yuan CNY=CFXS has strengthened 1.3% against the dollar in August, recouping nearly all its losses in the first half of the year. On Friday, it looked set for its fifth straight weekly gain, the longest winning streak in more than three years.
While none of the underlying drivers at home, namely a weak economy and capital flight, has changed, the yuan has been helped by growing bets for Federal Reserve interest rate cuts, which are weakening the dollar, and by a rally in the Japanese yen.
Meanwhile, Chinese authorities have worked behind the scenes to ensure the currency doesn't spike abruptly, which could roil fragile domestic financial markets and hurt exporters. They have surveyed the market to gauge the pressure, and quietly relaxed restrictions on imports of gold and trading positions in the yuan for some banks.
"The government is probably less concerned about depreciation but remains wary of FX volatility," said Gary Ng, senior economist for Asia Pacific at Natixis.
"While the pressure on the yuan may ease as the Fed may finally cut interest rates, there may be sudden and significant movements in capital flows."
One big reason for the People's Bank of China (PBOC) to be worried is the build-up of speculative short yuan positions during the currency's steady decline since early 2023, which could be unwound messily if the currency rises fast.
Foreign companies operating in China, domestic exporters and investors have swapped yuan for dollars to earn better returns in what is known in market circles as the yuan carry trade.
Analysts at the Macquarie Group estimate exporters and multinational companies have accumulated foreign currency holdings of more than $500 billion since 2022.
"As the yuan appreciates... concerns about the potential unwinding of yuan carry trade and shocks to financial markets may arise," said Zhu Chaoping, global market strategist at J.P. Morgan Asset Management.
"Recent market volatility in Japan might have reminded policymakers about these risks."
China's currency regulator, the State Administration of Foreign Exchange (SAFE), and the PBOC did not immediately respond to Reuters requests for comment.
PREVENT A STAMPEDE
Possibly to get an idea of pent-up yuan buying that could come as the currency appreciates, SAFE surveyed banks about their clients' FX conversion ratio - the proportion of revenues exporters convert into yuan - last week, two people with direct knowledge of the matter told Reuters.
"FX settlement is the issue that everyone in the market is mostly concerned about, besides the Fed rate cut," said Liu Yang, general manager of the financial market business department at minerals exporter Zheshang Development Group.
"After all, exports are the only major driver of China's economy among its traditional 'troika' (traditional growth engines), and regulators do not want the yuan to appreciate rapidly and substantially to weaken the competitiveness of export products," he said.
Separately, guidance given to banks last year banning them from keeping short yuan positions at the end of a day's trading has also been relaxed for some banks, two people with direct knowledge of the matter told Reuters.
Chinese banks have also been given new gold import quotas by the central bank, Reuters reported. Gold imports are usually curtailed when the yuan faces depreciation pressures.
The measures are subtle, analysts said, and together with the trend in the PBOC's daily benchmark guidance setting for the yuan, simply point to a desire to contain volatility, rather than thwart gains.
Still, market participants are revising their yuan forecasts.
Analysts at BofA Securities expect the yuan will continue to weaken, "given subdued growth and PBOC's easing bias", but see the yuan at 7.38 per dollar by year-end, not 7.45 as they had previously forecast. It is currently around 7.14 per dollar.
China's dollar hoard vs yuan https://tmsnrt.rs/4cC2ixy
Reporting by Shanghai Newsroom
Editing by Vidya Ranganathan and Kim Coghill
Activos relacionados
Últimas noticias
Descargo de responsabilidades: Cada una de las entidades de XM Group proporciona un servicio de solo ejecución y acceso a nuestra plataforma de trading online, permitiendo a una persona ver o usar el contenido disponible en o a través del sitio web, sin intención de cambiarlo ni ampliarlo. Dicho acceso y uso están sujetos en todo momento a: (i) Términos y Condiciones; (ii) Advertencias de riesgo; y (iii) Descargo completo de responsabilidades. Por lo tanto, dicho contenido se proporciona exclusivamente como información general. En particular, por favor tenga en cuenta que, los contenidos de nuestra plataforma de trading online no son ni solicitud ni una oferta para entrar a realizar transacciones en los mercados financieros. Operar en cualquier mercado financiero implica un nivel de riesgo significativo para su capital.
Todo el material publicado en nuestra plataforma de trading online tiene únicamente fines educativos/informativos y no contiene –y no debe considerarse que contenga– asesoramiento ni recomendaciones financieras, tributarias o de inversión, ni un registro de nuestros precios de trading, ni una oferta ni solicitud de transacción con instrumentos financieros ni promociones financieras no solicitadas.
Cualquier contenido de terceros, así como el contenido preparado por XM, como por ejemplo opiniones, noticias, investigaciones, análisis, precios, otras informaciones o enlaces a sitios de terceros que figuran en este sitio web se proporcionan “tal cual”, como comentarios generales del mercado y no constituyen un asesoramiento en materia de inversión. En la medida en que cualquier contenido se interprete como investigación de inversión, usted debe tener en cuenta y aceptar que dicho contenido no fue concebido ni elaborado de acuerdo con los requisitos legales diseñados para promover la independencia en materia de investigación de inversiones y, por tanto, se considera como una comunicación comercial en virtud de las leyes y regulaciones pertinentes. Por favor, asegúrese de haber leído y comprendido nuestro Aviso sobre investigación de inversión no independiente y advertencia de riesgo en relación con la información anterior, al que se puede acceder aquí.
