Goldman Says Now’s the Time to Sell Yuan

• Yuan Pares Record Rally

The offshore yuan pared its record weekly rally as China’s central bank raised its daily fixing less than projected and some analysts reiterated their bearish views on the currency.

The exchange rate fell 0.5 percent to 6.8224 a dollar as of 11:06 a.m. in Hong Kong, after a 2.5 percent surge over the past two days. Goldman Sachs Group Inc. advised clients that the best times to bet against the yuan have tended to be after interventions that flushed out bearish positions, or when China concerns were off traders’ radar screens.

Yuan bears were squeezed in Hong Kong this week after interbank borrowing rates soared and Bloomberg News reported that policy makers are preparing contingency plans to support the exchange rate. The move widened the offshore yuan’s premium over the onshore rate to 1.6 percent, the most since February last year. Options traders boosted their expectations of future price swings to the highest level in 11 months.

“The offshore yuan is sinking because there is some recovery in the dollar, perhaps the unwinding of short-yuan positions has mostly been done, and it’s closing the gap with the onshore currency,” said Roy Teo, senior currency strategist at ABN Amro Bank NV in Singapore. The yuan is likely to weaken this year as capital outflows continue and the U.S. Federal Reserve increases interest rates, Teo said.

The People’s Bank of China raised its reference rate by 0.92 percent to 6.8668 per dollar, following a 1 percent drop in a gauge of the greenback’s strength overnight. The onshore yuan slumped 0.2 percent. Friday’s fixing was weaker than Mizuho Bank Ltd.’s prediction of 6.8447 and Australia & New Zealand Banking Group Ltd.’s estimate of 6.8456.

“This is a technical move in the dollar, and the PBOC took advantage,” said Irene Cheung, a Singapore-based foreign-exchange strategist at ANZ.

The yuan could potentially fall further than 7.3 per dollar by the year-end, Goldman’s emerging-market strategists led by Kamakshya Trivedi in London, predicted in a note dated Thursday. That’s more bearish than the 7.16 median forecast in a Bloomberg survey.

Benjamin Fuchs, chief investment officer at the $2 billion hedge fund BFAM Partners (Hong Kong), said that China’s moves to repeatedly tighten capital controls risk eroding confidence in its currency. The dollar’s advance against the yen and other currencies is also increasing competitive pressure on China to let the yuan depreciate, he said.