China Said to Intervene in Offshore Yuan Market to Curb Declines

  • Central bank seeking currency stability, people familiar say
  • Offshore yuan has fallen most in Asia since British vote

Chinese authorities intervened via banks to support the offshore yuan in morning trading, according to people with knowledge of the matter.

The People’s Bank of China wants to maintain stability in the currency, the people said, declining to be identified as the move hasn’t been publicly announced. The yuan strengthened as much as 0.26 percent against the dollar in mid-morning in Hong Kong’s freely traded market, paring its discount to the onshore rate.

The offshore yuan has fallen 1.2 percent since Britain unexpectedly voted to leave the European Union, the biggest loss among 12 Asian currencies. A surging dollar is raising the risk of capital outflows from China at the same time as officials in Beijing contend with a slumping euro and mounting economic uncertainty in Europe, one of the country’s largest trading partners.

“The People’s Bank of China does not want to see the offshore yuan depreciating too fast,” said Kenix Lai, a Hong Kong-based foreign-exchange analyst at Bank of East Asia Ltd. “The economic downside continues in the second half, putting depreciation pressure on the yuan, while the fallout from Brexit will affect Chinese exports.”

The PBOC didn’t immediately respond to questions sent by fax from Bloomberg.

Currency Strategy

The offshore yuan was trading 0.28 percent higher at 6.6660 per dollar as of 3:37 p.m. in Hong Kong, trimming this quarter’s loss to 3 percent. The onshore yuan traded in Shanghai was little changed at 6.6504, near a five-year low.

Global market turmoil spurred by British secession is threatening China’s strategy for much of this year, where authorities maintained limited gains versus the greenback to buoy confidence in the yuan’s stability, while guiding depreciation against the currencies of its trading partners to bolster exports.

“Safe-haven bets will probably say the yuan is going to be on the weak side because you have a strong dollar,” said Richard Harris, Hong Kong-based chief executive officer at Port Shelter Investment Management. “There’s some concern within the Chinese leadership that the economy does need a little bit of help. The recovery will be somewhat delayed.”

Stability Sought

China’s central bank tried to soothe investor nerves late Tuesday, saying that the yuan remains stable against the trade-weighted basket of currencies and that policy makers will stick to their current mechanism for determining its exchange rate. The government is capable of keeping the yuan at a reasonable, balanced level, and there’s no basis for long-term devaluation, Premier Li Keqiang said Monday at the World Economic Forum in Tianjin, reiterating past comments.

Still, the recent declines have prompted some analysts to take another look at their projections for the yuan. Bank of America Corp. sees the currency dropping about 5 percent to 7 per dollar at the end of the year, compared with a previous estimate of 6.9, as China seeks greater export competitiveness. Australia & New Zealand Banking Group Ltd. said its 6.65 projection is under review, while UBS Group AG predicts the yuan will fall to 6.8 faster than it previously expected as China cuts reserve requirements to ease funding conditions.

Faster declines risk reigniting a vicious cycle where expectations for further weakness quicken capital outflows. An estimated $1 trillion left China in 2015 after the yuan’s unexpected devaluation in August prompted mainland investors to seek foreign assets and companies to pay down overseas debt.

— With assistance by Justina Lee, Kyoungwha Kim, and Steven Yang

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