Thank You PBoC!

Bloomberg: China Considers Options to Back Yuan, Curb Outflows

The authorities have used stress tests, models and field research, said the people who asked not to be identified as the studies haven’t been made public yet. Financial regulators have already encouraged some state-owned enterprises to sell foreign currency and may order them to temporarily convert some holdings into yuan under the current account if necessary, they added. The State Administration of Foreign Exchange didn’t immediately reply to a fax seeking comment.

The reported plans come amid increasing pressure on the yuan from a resurgent dollar, rising capital outflows and concern that U.S. President-elect Donald Trump may make good on his threats to take punitive measures on China’s exports. Policy makers in Beijing have recently taken a slew of measures to tighten control of the currency market, including placing higher scrutiny on citizens’ conversion quotas and stricter requirements for banks reporting cross-border transactions.

Most important for the short-term:

The offshore yuan jumped 0.9 percent to 6.8958 per dollar as of 7:20 p.m. Hong Kong time. That’s the biggest increase since January 2016. The currency traded in Shanghai climbed 0.3 percent, the most since July, to 6.9400. The Bloomberg Dollar Spot Index fell 0.4 percent.

In my picks for 2017, I wrote:

In the near term, the Chinese yuan looks a little oversold. I expect a bit of a rally after it cracks 7, even better if it rallies before since it will catch the bears. A 3 percent rally takes USDCNY to about 6.75, a 5 percent rally to 6.60. The PBoC has given bears nice entry points before, hopefully they provide another one.

The PBoC delivers again.