Investors Turn Pessimistic on Chinese Yuan as China Enters "New Normal"

Investor sentiment on the yuan turned bearish as the People's Bank of China is expected to continue easing monetary policy

The People's Bank Of China (Photo: Bloomberg)
The People’s Bank Of China (Photo: Bloomberg)

Short-selling positions on Chinese yuan have been close to reaching a new five-year record the past two weeks, according to a Reuters poll published on Thursday. This sentiment is expected following moves by the People’s Bank Of China, which lowered interest rates to strengthen exporting industries at the expense of the country’s currency.

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The short positions on the Chinese currency climbed to their highest figure since April 2010, when the news agency started including the yuan in a survey of market positioning in emerging Asian currencies.

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Throughout the week, the renminbi (as the yuan is also called) dropped to its lowest since October 2012 after China’s central bank over the weekend cut interest rates. The People’s Bank of China issued an announcement on Saturday that it will be reducing the rates on two benchmark targets by 25 basis points. The deposit rate has been cut to 5.35%, while the savings rate has been reduced to 2.5%.

Investor sentiment on the yuan turned bearish as the People’s Bank of China is expected to continue easing monetary policy to provide relief for the export dependent economy, now the world’s largest (by purchasing power parity).

The Chinese government on Thursday also announced its economic growth target for the year of 2015 at just around 7%, lower than the previous target of 7.5% or the famed double digit growth the country exhibited in past decades. This new period of low growth, featuring growth perpetually below 7%, might last for the foreseeable future. This is the “new normal.”

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