Offshore Yuan Gains as PBOC Raises Fixing First Time in 11 Days

  • China won't allow excessive declines, Credit Suisse says
  • ANZ cites weak fundamentals to predict further drops

The offshore yuan climbed for a second day, after the central bank raised its fixing for the onshore currency for the first time in two weeks amid speculation China will stamp out one-way depreciation bets.

The People’s Bank of China won’t step aside from intervention fully or tolerate any excessive weakness in the yuan as capital leaves the nation, Koon How Heng, a foreign-exchange strategist at Credit Suisse AG’s private banking and wealth management unit in Singapore, wrote in a note on Sunday. The drops of the past two weeks were "only a market phenomenon spawned by expectations of the rate hike" by the Federal Reserve, the official Xinhua News Agency wrote in a Dec. 17 commentary.

The offshore yuan rose 0.05 percent to 6.5532 a dollar as of 5:11 p.m. in Hong Kong, according to data compiled by Bloomberg. The onshore spot rate closed little changed at 6.4808 in Shanghai, according to China Foreign Exchange Trade System prices. The PBOC raised its fixing for the onshore currency by 0.09 percent to 6.4753, after lowering it by 1.5 percent in 10 days. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, dropped the most in more than a week on Friday.

"The PBOC may want the yuan to fluctuate two ways, instead of just weakening," said Irene Cheung, a currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. "This doesn’t mean the yuan’s depreciation trend is over -- the currency will continue to decline next year as fundamentals will be weak and the dollar will gain on more interest-rate increases."

Capital Outflows

Credit Suisse Private Bank has cut its three-month forecast for the onshore yuan to 6.55 a dollar from 6.4, and lowered its 12-month estimate to 6.8 from 6.6, because of the prospect of capital outflows, according to Heng.

Financial institutions including the PBOC sold 221 billion yuan ($34 billion) of foreign exchange in November, a sign of outflows. China, in an effort to stem the flight, has introduced measures including a halt to offshore bank borrowing from the mainland through bond repurchases and a suspension of new applications under the Renminbi Qualified Domestic Institutional Investor program, which allows yuan from the mainland to be used to buy offshore securities denominated in the Chinese currency.

— With assistance by Tian Chen

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