In This Article:
(Repeats story from Tuesday; no change to text)
* Options, NDFs show investors bet on yuan weakening to 7/dollar
* PBOC insists there is no deliberate currency weakening
* Easing monetary policy, rising dollar set up yuan for declines
By Andrew Galbraith and Noah Sin
SHANGHAI/HONGKONG, Oct 16 (Reuters) - Investors are betting that the powerful forces of easier monetary policy at home and unrelenting gains in the U.S. dollar will push China's yuan down, even as Beijing categorically insists that it isn't pursuing currency depreciation.
The yuan, or renminbi, is already down 10 percent against the dollar since March, when the first round of tit-for-tat tariffs in the U.S.-China trade war was announced.
However, the tightly managed currency is just slightly weaker than its peers in trade-weighted terms, and the People's Bank of China (PBOC) has been at pains to ensure its daily benchmarks don't signal a preference for a weaker yuan.
But as investors wait to see if China is labelled a currency manipulator in a U.S. Treasury report due this week, and as PBOC Governor Yi Gang reiterates Beijing's determination to keep easing policy, they are also betting the yuan is heading for the key 7-per-dollar level - about a percent weaker than its current one.
Offshore yuan forwards and yuan options show currency market participants are wagering on the currency creeping to 7.00 or lower, last seen during the 2008-2009 global financial crisis.
Ken Cheung, senior Asian FX strategist at Mizuho Bank, said the PBOC "has not come up with a hawkish stance so far to support the exchange rate, unlike in 2015 and 2016, when they repeatedly said they didn't see the basis for further depreciation."
"Back then, people doubted the PBOC's capability to stabilise the yuan, but they didn't doubt their willingness to do it," he said. "This time, it's the other way around. Their strategy is to guide the renminbi lower with the daily fixing."
The past year has seen China softening a campaign to wean the economy off debt, and easing monetary conditions in the face of slower growth and sharp stock market declines.
It is a marked shift from the 2015-2016 yuan sell-off, when Beijing ramped up capital controls and interest rates to support the currency.
POSITIONING NOT EXTREME YET
The PBOC governor has said China would keep the yuan's value "broadly stable", but that it would "continue to let the market play a decisive role in the formation of the yuan exchange rate."
Yi said that China "will not engage in competitive devaluation, and will not use the exchange rate as a tool to deal with trade frictions."