Yuan Set for a Decline this Week on PBOC’s Intervention

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The yuan fell this week as traders speculated that Beijing prefers driving the currency down in order to spur exports.

The Chinese currency plunged 0.04 percent on Friday, capping a 0.09 percent weekly decline, to stand at 6.2334 a dollar at the close of trade in Shanghai. The People’s Bank of China (PBOC) lifted the currency’s reference rate 0.02 percent higher to 6.1628 today.

PBOC said on Thursday that yuan stockpiles from forex sales had grown by 117 billion yuan ($18.8 billion) in April from a month earlier. Analysts believe that this indicates that the central bank is intervening in money markets to prevent the yuan from appreciating. The State Council also requested PBOC to expand the currency’ trading bandwidth and ensure it remains steady.

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“The PBOC is still biased toward a weak yuan to boost exports as economic growth is slowing,” Ho Man Chun, a Hong Kong-based economist with Bank of Communications told Bloomberg. “Any yuan gains in the near term are likely be short-lived.”

However, the government, through a spokesman with the Commerce Ministry, denied claims that it is trying to lower the currency in order to boost exports. Instead, it blamed the currency’s shifts on normal supply and demand forces.

Official reports released today shows that China’s FDI inflows surged 3.4 percent in April from a year ago, up from March’s 1.5 percent decline. Offshore yuan fell 0.04 percent on Friday in Hong Kong and remained steady this week at 6.2348 a dollar.

The onshore yuan’s one-month implied volatility surged five basis points on Friday, capping this week’s gain to 1.62 percent. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com