The Chinese yuan jumps to a 2-month high

Koki Nagahama/Getty Images for FIVB

On an otherwise sleepy day for forex markets, one currency is stirring — the Chinese yuan.

Seemingly out of nowhere it has jumped to a two-month high, heaping pressure on the US dollar as a consequence.

Against the offshore traded yuan, or CNH, the dollar is down 0.12% at 6.8651, currently sitting at the lowest level seen since March 28.

While seemingly a small move compared to those seen in other currencies, it’s relatively large for the yuan.

The 5-minute chart below shows the abrupt move lower that occurred just over an hour ago.

USD/CNH 5-Minute Chart

And that’s seen the USD/CNH take out the low of 6.8674 set on April 13.

USD/CNH 4 Hour Chart

The move appears to have followed a similarly abrupt plunge in onshore traded yuan, or CNY, with the USD/CNY also slicing lower.

According to Reuters, traders reported that the move was due to state-owned banks selling US dollars in the onshore market, presumably to support the yuan following yesterday’s decision from Moody’s to downgrade China’s sovereign credit rating one notch to A1.

Some have speculated that this could intensify capital outflows from China which have risen in recent months.

“Authorities have been setting the daily yuan fixings stronger in an attempt to ward off outflow pressures, but the onshore CNY spot rate has been consistently trading weaker than the fix, a sign that dollar demand onshore remains strong,” said Khoon Goh, David Qu and Raymond Yeung, analysts at ANZ.

“While capital outflows have been well contained in Q1 this year, there has been a pick-up in April and we expect to see onshore dollar demand rise.

“Authorities will have to revert to FX intervention if they want to bridge the gap between the spot and fix, as merely setting stronger fixings by itself is unlikely to have much effect.”

Based on the sharp move in the yuan today, it appears that may already be taking place.

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