Breaking News
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

China's Yuan Shakeout Fails to Trigger Panic Among Traders

ForexJul 03, 2018 22:51
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Bloomberg. Genuine bundles of Chinese one-hundred yuan banknotes are arranged for a photograph at the Counterfeit Notes Response Center of KEB Hana Bank in Seoul, South Korea, on Monday, Aug. 14, 2017. China's factory output and investment slowed somewhat in July, according to data released today, yet the yuan appeared not to take the data as negative, if in fact it's paying attention to it at all. Photographer: SeongJoon Cho/Bloomberg

(Bloomberg) -- The last time China’s currency sank as quickly as it has in recent weeks, panic ensued: traders rushed to hedge their yuan positions or speculate on further declines, global markets plunged, and policy makers in Beijing responded with heavy-handed intervention.

Now -- almost three years after China’s shock 2015 devaluation -- the response to yuan weakness is proving decidedly more subdued. While gauges of trader angst have ticked up, they’re a far cry from levels reached in 2015 and early 2016.

“I don’t see panic,” said Ryan Lam, the head of research at Shanghai Commercial Bank.

That could change, of course, if China’s economy shows further signs of deterioration amid the trade fight with the U.S. But for now, traders appear to have faith that the yuan’s slump won’t spiral out of control. That sentiment was underscored on Tuesday as the currency rebounded from an 11-month low, buoyed by reassurances from Chinese central bankers that they will keep their nation’s currency stable and not deploy it as a weapon in the trade conflict with the U.S.

Below are six charts showing how key yuan indicators have evolved since the devaluation rocked assets around the world:

The offshore yuan’s three-month risk reversal -- a gauge of traders’ willingness to bet against the yuan in the options market -- is still well below levels reached in 2015 and 2016. While yuan options volume has jumped, bearish positioning has yet to reach extremes.

The yuan’s one-month implied volatility shows traders are pricing in the prospect of larger swings in the currency, but the metric has been higher than current levels several times over the past few years.

Action in the forwards market is markedly different than in the wake of the 2015 devaluation, with 12-month forward points declining to multi-year lows. That suggests there’s been no rush to finance bearish bets.

Funding costs in the offshore yuan market remain low, suggesting the PBOC hasn’t tried to tighten cash supply this time around, a form of intervention. Mopping up liquidity is one way to burn yuan bears by making it expensive to short the currency.

The offshore yuan has been trading basically in line with the onshore exchange rate, reflecting limited bearish bets in the overseas market. The gap was more than six times larger at the start of 2016.

Foreign investors increased their holdings of onshore Chinese bonds for a record 16 straight months in June. Expectations that they’ll keep buying has helped bolster confidence in the yuan, according to Christy Tan, head of markets strategy at National Australia Bank in Singapore. Foreign purchases briefly declined after the yuan devaluation three years ago.

China's Yuan Shakeout Fails to Trigger Panic Among Traders

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email