Rumors Run the Currency Market

The spike in the yuan last week tells us the market expects a sharp depreciation in the yuan one day, and when it comes, it will be near instantaneous.

June 30, the offshore market of RMB against the US dollar exchange rate (CNH) reproduction transaction. 15:00 the same day, the offshore renminbi against the US dollar suddenly in just 10 minutes, diving quickly fell more than 400 basis points, fell below 6.7 and hit its lowest point since February 6.7023.

Yesterday, Reuters quoted officials as saying that China's central bank is willing to let its currency in 2016 fell to 6.8 yuan to the dollar, in order to support the economy. "Reuters issued a message, is the direct cause of offshore RMB crash." A stock line of senior foreign exchange dealer with respect.

"It was a lot of traders feel particularly surprising, then I have foreign media reports that China's central bank this year, intends to let the yuan exchange rate fell to 6.8, resulting in a substantial short selling of international capital offshore renminbi arbitrage." A Hong Kong bank foreign exchange traders said.

However, this bizarre decline did not last long, ending at 20:00 on June 30th, the offshore market of RMB against the US dollar hovered near 6.6647, basic regain lost ground.

"The market speculation the central bank once again in the afternoon by Chinese banks intervene in currency markets to curb the decline in offshore renminbi." He said.

..."At present, China's central bank would not want to continue the sharp depreciation of the RMB exchange rate, even below the 6.7 mark, because it means short selling will directly impact capital flows, offshore renminbi year low 6.7585, once this point was again broken, the new space will be open renminbi fall, will inevitably lead to greater pressure on capital outflows. "he admits.

The PBoC was not happy:

The central bank issued a statement later, saying that a few media continues to issue RMB exchange rate of false information, misleading public opinion at a critical point in time, disrupting the normal operation of the order of the foreign exchange market, the objective of contributing to a number of market speculative forces short yuan. The central bank said that such behavior will retain the right to pursue the relevant responsibilities through legal channels.

Markets are self-correcting though. Or did the PBoC intervene? In which case who is the liar, the "rumor" monger who pushed yuan lower in a flash, or the central bank putting the price back up? In this case there was a potential reason for spiking the price: options expiration, with at least $20 billion betting on a cheaper yuan.

"Previously, many hedge funds are buying offshore RMB put option expires at the end of 6, the implementation of the basic price between 6.7-6.8." Currency trader at a foreign bank to disclose. To his knowledge, this type of transaction size puts in at least 20 billion US dollars.

Even if it was all the work of hedgies trying to make a quick buck (or break even) before options expiration, it revealed the fragility of the current equilibrium.

Furthermore, the PBoC's threatening of legal action against the rumor mill only serves to confirm the reports were correct: PBoC Confirms Yuan Will Devalue to At Least 6.8 This Year

iFeng: 离岸人民币大跌400基点内幕：沽空势力利用传闻打压