FxWirePro: Yuan weakens as PBoC relaxes shorting restrictions

Yuan has declined sharply after reaching as low as 6.44 per dollar last week, the highest level since March 2016 and trading at 6.527 per dollar today as China relaxes shorting rule, that was imposed in response to yuan’s steady decline since 2015. The yuan is up close to 5 percent this year as the dollar suffered its worst yearly run so far in three decades.

According to reports over the weekend, People’s Bank of China (PBoC) has signaled that it is going to roll back bank’s foreign exchange reserve requirements. In response to yuan’s steady slide since mid-2015 after PBoC’s forced devaluation it in August 2015, PBoC imposed 20 percent reserve requirements when buying currency forwards. The central bank is now ready to unwind that restriction bring down the requirement to zero. However, this year, with the dollar on the back foot, removal of restriction may not lead to strong depreciation.

We have changed our outlook for yuan back in April (check http://www.econotimes.com/FxWirePro-Yuan-outlook-changed-from-downside-to-upside-for-H2-723970 ) from bearish to bullish. And in subsequent articles, we gradually upgraded our bullish forecast and in the last one we pushed out target higher to 6.38 per dollar. Yuan has already reached all our targets at 6.72, 6.69, 6.57, 6.5 and 6.46. We remain hopeful that our latest final target of 6.38 would be reached too.