The People’s Bank of China is likely to continue to intervene after the G-20 Chengdu meeting, in order to manage market expectations if required ahead of the G-20 Hangzhou Summit set to take place on 4-5 September and the yuan’s SDR inclusion effective on 1 October, said Scotiabank in a research note. The 6.70 level would still be a critical level for both USD/CNY spot and fixing in the near term, added Scotiabank.

The depreciation pressure on CNY is expected to continue throughout 2016 given the persistent outflows of capital including overseas direct and portfolio investment. In the first half of this year, nonfinancial overseas direct investment rose sharply by 58.7 percent year-on-year to USD 88.86 billion. Canada’s British Columbia province stated on Monday that an additional property-transfer tax of 15 percent would apply to foreign nationals and overseas corporations purchasing residential property in the Metro Vancouver area from 2 August.

Moreover, mainland investors have significantly increased their holdings in Hong Kong shares in 2016 via the Shanghai-Hong Kong Stock Connect scheme. The investors have bought a net of CNY 68.7bn and CNY 93.5bn of Hong Kong stocks in the May to July period and year-to-date respectively. The buying spree of China’s investors might be mainly due to their rising demand for asset diversification in the midst of continuing worries regarding CNY’s depreciation, stated Scotiabank.

Hong Kong’s offshore yuan deposits were up 1.27 percent to RMB 732.15 billion during the end of May from RMB 722.98 billion a month ago.  Moreover, the Chinese central bank’s commitment to keep a stable yuan basket is likely to restrict upward room for USD/CNH DF points at the present stage, according to Scotiabank.

Even if China keeps on tightening current rules on outflows of capital, the country is also encouraging SOEs to issue dollar bonds in offshore markets and convert them into the yuan in onshore market, stated Scotiabank. According to Hong Kong’s local media, the SCMP, sales of “dollar bonds by some of the country’s largest biggest SOEs rose to a record USD 18.7 billion in April-June period, 80% higher than the average in the previous four quarters.” The NDR, in June, had announced to permit 21 companies including the county’s largest banks to sell foreign-currency debt without having to first seek approval, noted Scotiabank citing the Hong Kong media.

“We think the measures could help shore up the nation’s shrinking foreign reserves, while stabilizing market sentiment to some extent”, added Scotiabank.