Keeping China's yuan from falling much further will likely bedevil the mainland's policymakers, Eric Robertsen, head of global macro strategy and foreign-exchange research at Standard Chartered, said on Monday.
The yuan has certainly been volatile recently.
The People's Bank of China (PBOC) set the yuan midpoint at 6.9262 on Monday, a sharp drop for the renminbi, compared with Friday's fixing at 6.8668. On Tuesday, the fixing was set at 6.9234, indicating a slightly stronger yuan, compared with the pair's onshore trading close at 6.9330 on Monday.
China's central bank does not allow the currency to move more than 2 percent from its daily fixing in onshore trade. While policymakers cannot closely control offshore trade of the currency, it usually remains relatively close to its onshore counterpart.
Onshore, the dollar was fetching as little as 6.8679 yuan late last week, dropping from levels as high as 6.9603 yuan earlier in the week. At 9:35 a.m. HK/SIN on Tuesday, the dollar/yuan was at 6.9285.
In offshore trade late last week, the dollar was fetching as little as 6.7815 yuan amid a spike in overnight borrowing and deposit rates, down from as much as 6.9872 early last week. At 9:20 a.m. HK/SIN on Tuesday, the dollar was fetching 6.8879 yuan offshore.
"We've started the year with some fireworks in the currency," Robertsen said. But while he expected dollar strength would continue to pressure the yuan, he only expected the dollar/yuan pair would rise to around 7.06 this year.
He noted that the PBOC was likely to use three methods to control the pace of the renminbi's depreciation – foreign-exchange intervention, interest rates and capital controls – but added that those would all present "very challenging side-effects."