China’s relentless fight to restore Yuan back to stability is turning out to be a losing battle. Their current attempt to starve offshore market with cash and, in turn, flood domestic banks did not bear any fruits as speculations against Yuan went back to where they were at the beginning of the year. Earlier in January, the cost of borrowing in Hong Kong went up due to a move by China’s central bank to buy the currency. In the process, this made it costly for short traders to borrow. This move appeared as a warning to short-sellers, who borrow assets and sell them with the aim of buying them back when their prices reduce hence making the profit.
Sim Moh Siong, who is a foreign-exchange strategist, warns that even though the cost of borrowing has gone down, short-selling won’t be very promising in the future as the similar actions to increase the cost of borrowing are bound to take place. Even with the China’s officials fighting the fears of a weakening currency and claiming that they plan to maintain the exchange rate the variation between foreign-exchange and macroeconomic policies is not helping as speculators continue to benefit.
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