Yuan bears wake from slumber

Malaysia's ringgit had the largest increase in volatility in that time and slid 2 percent versus the dollar, the region's worst performance.

HSBC Holdings Plc forecast in a research note last week there will be two more reductions in benchmark interest rates by mid-2015, each of 25 basis points, and banks' reserve requirement ratios will be lowered by 150 basis points cumulatively next year.

Lower interest rates and capital outflows will weaken the yuan to 6.35 per dollar in 2015, Wang Tao, the China economist at UBS, wrote in a Nov 26 report.

Barclays and UBS rank among the world's four biggest foreign exchange dealers, a survey by Euromoney Institutional Investor Plc showed in May.

Citigroup Inc, the largest forex dealer, forecast as of Nov 21 that the yuan would weaken to 6.23 by the middle of 2015.

Deutsche Bank AG, ranked second, was reviewing its yuan projections, said Linan Liu, a Hong Kong-based rates and currency strategist at the bank, on Monday.

China's decision to cut borrowing costs was triggered by rising real interest rates, which climbed to the highest level since 2009 last month, and does not signal a change in the central bank's prudent monetary policy, Hu Xiaolian said on Nov 27.

The yuan's globalization requires a stable or even slightly strong exchange rate and devaluation is unlikely, Financial News reported on Nov 26. The newspaper is a publication of the central bank.

"We do not believe that the rates cut implies that the PBOC would be less tolerant of yuan appreciation and the fixings last week show as much," said Sacha Tihanyi, a Hong Kong-based strategist at Scotiabank, on Monday. The yuan will strengthen to 6.10 per dollar by the year-end and climb to 5.98 by the end of 2015, according to Tihanyi.

Nomura Holdings Plc has bolstered its bets on yuan gains through the options market, according to a Nov 25 report by Craig Chan, the bank's head of Asian currency strategy. The chances of more rates cuts, which would effectively reduce the yield differential with the dollar, could cause depreciation in the second quarter as a sharp economic slowdown is likely, he said.

China's official Purchasing Managers Index fell to an eight-month low in November. The world's second-largest economy will expand 7 percent in 2015, less than this year's estimate of 7.4 percent and the slowest pace since 1990, according to median estimates in Bloomberg surveys.

"The rates cut is an inexorable step toward a weaker currency," said Michael Every, the Hong Kong-based head of Asia Pacific financial markets research at Rabobank International, on Nov 24. "It is a reflection of economic weakness," he said, predicting the yuan will weaken 3.9 percent to 6.40 per dollar before the end of this month.

Some technical gauges are also pointing to a bearish outlook for the yuan. The moving-average convergence divergence, or MACD gauge, has risen higher than its signal line and is above zero, a bullish signal for the dollar versus the yuan.