China has tried to depreciate the yuan in a controlled manner, but, increasingly, this is becoming more and more difficult to maintain. Investors and businessmen, knowing this, have placed bearish bets on the yuan or converted yuans into dollars, which hastens the decline of the second largest economy’s currency.
China has pushed a weaker yuan since it entered into the International Monetary Fund’s group of reserve currencies in early October. The yuan’s decline increased when Donald Trump won the U.S. presidential election. That victory hastened the US dollar’s year of gains. Emerging-market currencies tumbled. In 2016, the yuan is down 6.2% against the dollar this year onshore. The People’s Bank of China doesn’t want the currency to slide in a chaotic manner.
“The PBOC may intervene” according to Prashant Singh, a senior portfolio manager at Neuberger Berman in Singapore. A poor global economy and tensions between the U.S. and China, however, signal to Mr. Singh: the decline will continue.
“Central-bank-led interventions are typically temporary in nature,” says Mr. Singh. “The fundamental factors still point to weakness.”