FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, suggests that the renminbi has remained more stable in the Asian trading session after the Chinese authorities have stepped up support to counter heightened downward pressure in the near-term.
Key Quotes
“The spread between the offshore and onshore renminbi rates narrowed sharply yesterday driven by intervention in the offshore market. Han Jun, the deputy director of China’s office of the central leading group for financial and economic affairs has confirmed that the PBoC has intervened in the offshore market over the last two days. He also stated that betting against the renminbi will fail and described calls for a large depreciation as “ridiculous”. The intervention has prompted the cost of borrowing in Hong Kong to jump to a record since the Treasury Markets Association started compiling the fixings in June 2013.
Ma Jun, the chief economist at the PBoC research bureau has attempted as well to provide further clarity on recent developments in exchange rate policy to help dampen building expectations that China is intentionally weakening the renminbi by setting lower fixes. He reiterated that the daily fixings were based on the previous day’s closing price and changes to the basket of currencies against which the renminbi is valued.
He expects downward pressure on the renminbi to ease after investors absorb the shift to valuing the renminbi more against a basket of currencies and away from linking it to the US dollar. The PBoC intends to strengthen the renminbi reference to a basket of currencies but “won’t strictly” peg the renminbi to the basket. He expects the renminbi’s stability against a basket to be “enhanced” while two-way volatility against the US dollar should increase. However, he stated that the PBoC will “appropriately limit” daily renminbi-US dollar volatility.
He suggested as well that the future design of the renminbi exchange rate mechanism may include a crawling peg against a currency basket based on economic trends. The PBoC intends to strengthen communications with the markets by improving transparency of its intervention principles and the accessibility of the renminbi index data which should help to ease uncertainty over currency policy.”
(Market News Provided by FXstreet)