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Offshore renminbi weaker after PBoC reported to ease shorting restrictions

After a record three-month run where it gained 4.5 percent against the greenback, the renminbi is showing signs of softening following reports that China’s central bank is easing restrictions on shorting the currency.

The offshore renminbi had eased as much as 0.3 per cent to Rmb6.5162 per dollar in early trading on Monday.

According to reports over the weekend, the People’s Bank of China has signalled it will roll back banks’ foreign exchange forward reserve requirements, reducing to zero the amount institutions must set aside when buying currency forwards, down from 20 per cent. The measure would unwind restrictions implemented in late 2015 when the renminbi entered prolonged depreciation after being suddenly devalued in August that year.

“The market is apt to interpret the move (if it occurs) as a signal that the authorities are uncomfortable with the speed and magnitude of yuan appreciation,” Société Générale’s Jason Daw said on Sunday. “Given the recent one-way price action, a correction might ensure if some speculative short dollar-yuan positions are unwound.”

There had been expectations the Chinese currency would remain strong ahead of the Chinese Communist Party’s congress next month. Analysts believed it unlikely central bankers in Beijing would risk serious market volatility ahead of the five-yearly meeting of China’s leadership, which starts on October 18.

The onshore renminbi market begins trading shortly.