Yuan market disconnect sparks debate
the first seven months of this year, while China's recovering exports and increasing trade surpluses in recent months have added to the dollar supply, said a trader at a major state-owned bank in Beijing.
A trader at a European bank in Shanghai concurred, adding that the glut could persist for the next few weeks.
The bank has easy options to hand. It can stick with the current strategy and use the midpoint to bluntly hold back the market, or it can intervene to vacuum up the dollar glut.
We think they'll intervene to bring the spot up (weaken) to the fix, said Minikin of Standard Chartered, adding that some anomalous trades over the past two weeks suggest the bank is already doing so.
Such a surge occurred in the last hour of trading on Friday, which some traders speculated was the beginning of a sustained attempt to force the spot market back in line.
However, the do-nothing option may also be viable. Few believe the yuan' s current strength is tenable.
There are short-term factors, maybe geopolitics, maybe optimism about the Chinese outlook, but that is only temporary, said Kowalczyk of Credit Agricole.
The balance of payments data doesn't support more appreciation. China needs to turn to policies supporting growth, and that will require a weaker yuan.
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