China’s iron-clad grip on the yuan has reached a level unseen for well over a decade in its daily reference rate, raising the risk of a buildup of currency pressure that may one day have to be released.
The People’s Bank of China (PBOC) kept the so-called fixing for the managed currency little changed on Monday, not reacting to last week’s late rally in the yuan on the back of broad dollar weakness. The PBOC has kept such a tight range on the reference rate — its favourite tool for guiding the currency — that a gauge of its swings has collapsed to levels last seen in 2010. Slumps in volatility to similar levels over the past decade have often preceded a sizeable move in the yuan. “If the PBOC were to loosen its guidance on the yuan, short-sellers would see it as another window to do the trades,” said Zhou Hao, chief economist at Guotai Junan International in Hong Kong.