China keeps tight control of yuan level in daily setting, collapsing currency volatility to levels last seen in 2010
- A gauge measuring yuan swings has collapsed to levels last seen in 2010 as the PBOC keeps its reference rate within a tight range
- The yuan has weakened 5 per cent against the US dollar this year, the worst after the Japanese yen and Malaysian ringgit
China’s ironclad grip on the yuan has reached a level not seen for well over a decade in its daily reference rate, raising the risk of a build-up of currency pressure that may one day have to be released.
The People’s Bank of China kept the so-called fixing for the managed currency little changed on Monday, not reacting to last week’s late rally in the yuan on the back of broad dollar weakness. The PBOC has kept such a tight range on the reference rate that a gauge of its swings has collapsed to levels last seen in 2010.
Slumps in volatility to similar levels over the past decade have often preceded a sizeable move in the yuan.
“If the PBOC were to loosen its guidance on the yuan, short-sellers would see it as another window to do the trades,” said Zhou Hao, chief economist at Guotai Junan International in Hong Kong. Beijing may not ease its control before the yuan rises beyond 7.15 per US dollar, he added.
The PBOC has spent much of the year trying to steady its currency, which has fallen to a 16-year low against the dollar. Despite some benefits to the economy from a weaker yuan, Beijing is wary of giving the message that it is greenlighting depreciation, which could result in even sharper declines and worsen capital outflows.
