Morgan Stanley forecasts continued bearishness on the Chinese yuan, as option traders become the most bearish on the offshore yuan in ten months. The HSBC final manufacturing PMI came in at 48.1 in April, lower than the 48.3 from the previous month. Along with poorer than expected economic data, the yuan has declined as the People’s Bank of China (PBOC) weaken the onshore yuan in order to spur economic growth.
The PBOC has weakened the onshore yuan’s reference rate by almost one percent against the greenback this year in order to knock out the ongoing carry trade. The yaun’s weakening has hindered further speculation and encouraged a more “free” exchange rate to two-way trading. A main objective for the Chinese central bank is to develop the yuan as a sustainable, internationalized currency. “The PBOC is tolerating continuing depreciation of the currency to correct the past 12 months or 24 months of short-dollar positions,” according to Suan Teck Kin, an economist at United Overseas Bank Ltd. Kin expects the yuan to continue to fall for the next couple of months.
Although the PBOC has activity weakened the onshore yuan, economists expect the onshore yuan to appreciate by 3.5 percent by the end of 2014.