China warning on speculation sparks first renminbi gain in nine days

HONG KONG - China's onshore renminbi advanced for the first time in nine sessions, after the central bank issued a verbal warning against currency speculation.

The currency advanced 0.1 per cent on Thursday, halting an eight-session slide of around 3 per cent.

The gains came after the People's Bank of China (PBOC) late on Wednesday issued a strongly worded statement saying that speculators will definitely lose money in the long term and key market participants need to "protect the authority of the fixing".

It also set the fix at a stronger-than-expected level for the 26th straight session.

The daily reference rate, Beijing's most widely used tool to guide renminbi expectations, has done little to arrest the currency's weakness amid a surging US dollar.

For most of the past week, the onshore renminbi has been trading close to the weak end of its 2 per cent trading band versus the greenback.

That is a sign that traders are sticking to their bearish bets on the renminbi amid the dollar's strength and as the local economy suffers from Covid-19 lockdowns and turmoil in the property sector.

"The yuan fix turned out to be a bear trap and the PBOC's stern warning was timed well," said Ms Fiona Lim, senior foreign exchange strategist at Malayan Banking in Singapore.

Still, the dollar-offshore yuan pair is likely to remain buoyant at current levels with the greenback direction still a dominant driver of this pair, she added.

The onshore renminbi has fallen about 4 per cent against the greenback this month and is on track for the worst annual loss since 1994.

On Wednesday, it fell to the weakest level since early 2008 and the offshore unit slid to a record low in data going back to 2010.

The offshore renminbi fell 0.5 per cent 7.1963 per dollar at 11.33am local time.

Commentary from local newspaper Securities Times also sought to calm market angst stemming from renminbi's weakness.

The speed at which the renminbi has depreciated against the dollar has actually been moderate compared with other currencies, and investors should view the moves with rationality, it said.

The PBOC's headache is shared by policymakers worldwide, as the dollar continues to surge.

China's central bank is also being forced to walk a tight rope between boosting its economy, which is facing a rising risk of a recession, without spurring renminbi weakness.

After a surprise cut to a key interest rate in August, the PBOC paused its easing this month.

Some economists expect it to delay any major stimulus moves, such as lowering interest rates and the reserve requirement ratio for banks to avoid adding further pressure on the currency.

Onshore yuan trading will be closed next week for local holidays, leaving the offshore unit without an anchor ahead of a major party meeting next month.

Earlier this week the PBOC imposed a risk reserve requirement of 20 per cent on currency forward sales by banks to make it more expensive to short the yuan.

That came after a previous move to reduce the foreign-currency reserve requirements for banks. BLOOMBERG