Yuan Surges in Afternoon Trade Amid Talk PBOC Supported Currency

(Bloomberg) -- China’s yuan surged both onshore and overseas amid speculation of central bank intervention and a decline in the dollar.

The offshore currency jumped as much as 0.7 percent in a sudden afternoon spike, after spending much of the day little changed. The yuan traded in Shanghai’s onshore market climbed 0.5 percent to 6.8100. At least two big Chinese banks were seen selling dollars against the yuan onshore, according to two traders who asked that they not be identified.

“This seems like intervention," said Ken Cheung, a currency strategist at Mizuho Bank Ltd. in Hong Kong. "They may be eager to keep the onshore yuan quarter-close to near 6.8 per dollar. The quarter-end rate may be an important indicator for foreign central bank reserve managers to consider adding the yuan as assets. Other reasons could be maintaining a strong yuan outlook before the launch of the Hong Kong bond connect.”

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Chinese policy makers are often suspected of intervening in stock and currency markets. On Tuesday last week, at least two Chinese banks sold dollars before the yuan’s official onshore close at 4:30 p.m., and stopped soon after, according to five traders. Before that happened, the close had ended up weaker than the fixing for 12 days in a row.

Yuan Surges in Afternoon Trade Amid Talk PBOC Supported Currency

The onshore yuan was last trading at 6.8126 per dollar and the offshore rate at 6.8154, leaving a very small spread. The offshore yuan closed 0.19 percent weaker than the mainland rate Monday, the widest discount since January. The Bloomberg Dollar Spot Index dropped 0.3 percent, compared with a gain in the morning session.

Yuan Surges in Afternoon Trade Amid Talk PBOC Supported Currency

Traders didn’t unanimously say Chinese officials were intervening, with some pointing to flows spurred by tightening in the forward curve.

The offshore yuan’s afternoon surge trimmed its losses for May to 1 percent -- compared with 1.5 percent before the suspected intervention. The currency is still headed for its biggest monthly drop since November. The onshore rate has strengthened 0.1 percent since May 31.

The offshore yuan’s tomorrow-next forwards points, an indicator of its short-term liquidity, have been negative during most of the past five days, suggesting ample supply. That makes it cheaper for traders to build bearish bets on the exchange rate.