PBOC shrugs off 7-mark bogey

Business | Gary Poon and Wires 7 Nov 2018

People's Bank of China adviser Ma Jun yesterday said it "isn't that crucial" whether or not China's yuan hits the level of seven to the dollar as market players have accepted the flexibility in the currency's exchange rate.

The media shouldn't pay too much attention to whether a specific level could be the bottom line, Ma said.

He pointed out that yuan's two-way volatility is similar to other major currencies while room for monetary policy easing "isn't big" due to the relatively high leverage ratio.

The offshore RMB increased 0.05 percent to 6.9162 while the onshore yuan dropped 0.14 percent to 6.9159 yesterday.

The internationalization of China's yuan is market-driven, Huo Yingli, director general of the Monetary Policy Department II of PBOC said, in a speech originally prepared for the central bank's deputy governor.

His comments came as the Ministry of Commerce said exports denominated in yuan rose by 10.5 percent in October year-on-year.

HSBC said it believed that the yuan can be the world's third-biggest reserve currency in five to eight years if China opens its financial and capital markets.

Stephen Innes, head of trading at Oanda, said that despite gestures to end the trade war, the "CNH bears are back at it again" because they know "that the path to any trade agreement between the US and China will be fraught with peril."

"In terms of fundamentals, nothing has changed," he said in a note. "That's why the weaker longs are being washed out. The price action on Tuesday makes sense."

Most investors are on hold, as they keep an eye on the outcome of the mid-terms and its impact on Trump's trade policy, said Ken Cheung, senior Asian FX strategist at Mizuho.

He expects the offshore yuan to trade between 6.88 and 6.93 ahead of the mid-term results.

"The major uncertainty for the yuan exchange rate is the trade war. The outcome of that could still change," Cheung said.

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