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Investors hedge their faith in China’s faltering yuan

By Noah Sin and Winni Zhou

HONG KONG/SHANGHAI (Reuters) – As China’s yuan approaches the 7 to the dollar barrier, investors are betting authorities will eventually let the currency fall beyond the historic level. Yet they are just as confident that China won’t allow the kind of capitulation seen in past market meltdowns.

The Chinese currency <CNY=CFXS> has fallen 10 percent against the dollar since March, when the first set of tit-for-tat tariffs in the U.S.-Sino trade war were announced, and has been inching close to the psychologically significant 7 figure, a decade low.

Although the central bank has not directly intervened to stem this decline against a strengthening dollar, it has signaled it won’t allow excessive volatility. Policy insiders have told Reuters authorities will fight a rapid descent in the yuan.

Data from currency reserves and commercial bank operations, however, suggest capital outflows are rising, possibly as investors bet on a yuan decline.

“It is natural that people in China want to hedge themselves,” said Cliff Tan, East Asia head of global markets research at MUFG, in Hong Kong.

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