Yuan Forwards Drop on Bets PBOC Cut Intervention Amid IMF Risk

Updated on
  • IMF requested China to disclose derivatives data, WSJ reports
  • Traders bet PBOC reduced support in yuan forwards, OCBC says

Yuan forwards declined for a third day in onshore trading on bets China’s central bank is scaling back use of the derivatives following a newspaper report that the IMF requested details of its positions.

The International Monetary Fund has asked China’s central bank to disclose holdings of forwards and futures, which could shed light on more opaque methods of intervention used to support the yuan, the Wall Street Journal reported on Monday. Zhu Min, the Washington-based lender’s deputy managing director, said on Tuesday the fund didn’t seek more foreign-exchange information from China. The denial didn’t kill off speculation that the lender had sought the data, according to Mizuho Bank Ltd. A gauge of the dollar’s strength rose to a one-week high on Wednesday.

"There’s speculation that the People’s Bank of China has been reducing its intervention in the derivatives market in the past two days, pressuring the yuan lower in both forwards and spot markets," said Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking Corp. "The gains in the dollar are also driving the yuan weaker."

The yuan’s 12-month deliverable forwards dropped 0.45 percent to 6.5970 a dollar as of 5:34 p.m. in Shanghai, according to data compiled by Bloomberg. They’ve dropped 1 percent over the past three days. The yuan traded in Hong Kong fell 0.14 percent to 6.5029, even after the People’s Bank of China strengthened its daily reference rate by 0.05 percent. The Bloomberg Dollar Spot Index gained 0.3 percent.

"Traders think Chinese agent banks are squaring off their short dollar forward positions in the onshore yuan market, and this kind of speculation spilled over into the offshore market," said Ken Cheung, a currency strategist at Mizuho Bank. "Market participants reckon the PBOC also hold a considerable size of short dollar forward positions in the offshore market after the intervention last September."

The PBOC injected 80 billion yuan ($12.3 billion) via seven-day reverse-repurchase agreements Wednesday, bringing the offerings to 290 billion yuan so far this week. The seven-day repo rate, a benchmark gauge of interbank funding availability, rose four basis points to 2.37 percent, according to weighted average prices from the National Interbank Funding Center.

— With assistance by Tian Chen

Before it's here, it's on the Bloomberg Terminal. LEARN MORE