PBoC Building a CNY Target at 6.70

Bloomberg: China Seen Firing a Warning Shot at Bears in Yuan Defense
Suspected intervention by the People’s Bank of China drove the cost of borrowing the currency offshore to a seven-month high on Thursday, making it more expensive to short the yuan. The authorities will prevent the exchange rate from weakening beyond 6.7 per dollar anytime soon, according to Svenska Handelsbanken AB, the yuan’s top forecaster. A breach of that level may trigger sharp moves and embolden bears, said Scotiabank. The onshore currency closed at 6.6650 on Thursday.

“There’s a strong expectation for the yuan to decline, so if the exchange rate breaks a round-number level like 6.7, sentiment could take a hard hit," said Tommy Ong, managing director for treasury and markets at DBS Hong Kong Ltd. "The Hong Kong borrowing rate jumped probably because the PBOC drained liquidity from the offshore market. This can be taken as a hint that it won’t allow any one-way bets."
This anchors the 6.70 level and increases the volatility of the expected move when it is finally breached. The key area is around 6.84, once that level is breached all of the post-2008 yuan appreciation will be reversed.

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