2015-02-26

Chinese Fear Ominous Sign in Currency Market, Dub Yuan a Fixed Currency, Market Dead

Chinese currency traders viewed the first day of trading in the Year of the Goat as ominous, as the renminbi barely moved on Thursday, effectively a dead market. The lack of activity comes as the yuan is sitting on the edge of the daily trading band. Unable to trade the yuan lower, the currency has become fixed again. The peg is here again.

iFeng: 人民币再趋跌停 交易员:这个市场死掉了 不会动了
Reuters quoted a trader saying, this market is dead, it doesn't move.

Another trader at a large Chinese bank feels the same: "Hey, everyday a fixed exchange rate, saves me effort."
Other traders see the yuan as being weak against the dollar due to U.S. dollar strength, not yuan weakness. Which is partially the case, but what if the U.S. dollar bull market is only beginning?

Yuan Within 0.03% of Weak End of Band Amid Easing Speculation
The yuan was little changed from Wednesday to close at 6.2589 a dollar, China Foreign Exchange Trade System prices show. The gap with the central bank’s reference rate of 6.1379 was 1.97 percent at the close, after earlier widening to 1.9958 percent, near the 2 percent limit.

“It seems that they are leaning toward a weaker yuan but they are doing it very, very slowly and very gradually,” said Eddie Cheung, a foreign-exchange strategist at Standard Chartered Plc in Hong Kong, referring to the PBOC. “There’s probably going to be some mild intervention just to make sure we don’t hit that top band.”

Spooked by Yuan Drop: China’s Megarich
Because of the extreme concentration of money at the apex of Chinese society, national stability rests to an extraordinary extent in the hands of just two million or so families. They are the top 1% of urban households, and already, their confidence in China’s future under President Xi Jinping is shaky.

Many are fleeing with their cash--not all of it, but enough to bid up prices of luxury real estate from Mayfair to Manhattan to Mission Bay, a waterfront neighborhood of Auckland, New Zealand.

Financial authorities are trying to ensure that the remainder doesn’t disappear across the borders. A potential trigger for a disorderly exodus of capital, one that could threaten the entire fragile financial system, would be a precipitous decline in the value of the Chinese currency.

That’s one reason—an important one—why a sharp yuan drop is unlikely, even though a slowing economy is increasing domestic pressure on the government to let the yuan fall in a bid to boost exports.

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