This week the fluctuation in the Chinese currency renminbi, had the markets worried as the appreciation that had been taking place over a number of years suddenly came to a halt. There were plenty of theories flooding the markets about why the currency and begun to weaken, even though the People’s Bank of China (PBOC) and Beijing had repeatedly made clear their intention to make the currency more volatile. As a result of the longer term trend, the gradual appreciation of the currency had encouraged investors to view the currency as a “one-way bet”, a trend that they were confident would continue.
It now seems that the PBOC have caught the market of guard in an attempt to fulfil their commitment to remove the renminbi's reputation as an effective one sided gamble. Traders now claim it is clear that the PBOC are intervening in order to guide the currency lower which in itself reminds us that the currency is quite a way off being freely floating. The central bank clearly still has the renminbi on a tight leash, adjusting its strength as it sees fit. However, at least this move achieved its goal of creating some volatility, and although we doubt the renminbi is a two way bet at the moment, creating a little uncertainty is certainly a step in the right direction.
Sasha Nugent
Currency Analyst
