Yuan finally falls against king dollar

• One way bet on the Chinese Yuan might be coming to an end as the currency dropped to a 28 month low against the dollar today.

• Currency is currently trading at 6.295 against the dollar lowest level since October 2012.

• One might assume that the move could be arranged by People's Bank of China (PBOC), which fixes the currency's mid-rate each day, allowing investors to then trade the currency 2 per cent higher or lower, but the close is much higher than the rate set at 6.1475.

• Compared to a managed currency Yuan's move is significant which was trading at all-time high of 6.04 against the dollar in 2014.

• PBOC has increased the band to 2% from previous 1% as it prepares to move to a more floating rate regime.

• Yuan fell 2.5 per cent in 2014, its first annual loss in two decades.

Analogy and expectation -

• Similar depreciation like 2014 could be in store for this year too.

• Data released last month showed net outflows from China's capital account reached a record of $91bn, following an outflow of $56.7bn in the third quarter.

• Recent trend shows that Chinese companies that have aggressively borrowed in dollar is eager to pay down or cover as interest rates are about to rise in US.

• Companies that export goods to china, recently been hedging there positions against further fall in Yuan for first time in years according to report published in financial times.

• Policy easing by PBOC has reduced the yield spread thus reducing the incentive for carry trades. 

Under this circumstance Yuan is expected to depreciate but not break grounds as it still remains heavily managed by PBOC.