China's renminbi fell on Monday after the country's central bank ended two policies intended to stop market speculators from shorting the currency.
The People's Bank of China (PBoC) had adopted in 2015 a requirement that raised the cost of trading currency forwards – an FX derivative – to speculate on the renminbi losing value – a process known as short selling, or shorting.
Late on Friday the PBoC sent a notice to China's banks saying it had dropped this rule and a further requirement, added in January 2016, that banks hold reserves against deposits held in China's offshore trading centres.
Despite these rules, the renminbi lost 6.5% against the dollar in 2016, but has largely recovered this record annual loss so far in 2017.
Meanwhile, China's foreign reserves have recovered for seven-consecutive months since hitting a three-year low at the beginning of the year.
While the PBoC is likely to consider its measures have got the job done, some analysts suggest the 2016 losses and 2017 recover is more down to the impact of the US dollar's fortunes during this period.
Indeed, the dollar index, a measure of the dollar strength relative to a basket of six of its main trading rivals – but not including the renminbi, is down 12.3% this year after gaining 4% in 2016.
"Friday’s move to withdraw that reserve requirement suggests the PBoC now feels comfortable with supply-demand trends in the market – and potentially ushering in a less one-way market in dollar-renminbi," said Chris Turner, head of foreign exchange strategy at ING.
"That said," he added: "With the dollar trend staying soft and scope for portfolio inflows to resume into China, our team has revised its forecasts for the end of 2017 and end 2018 to 6.40 and 6.20 respectively."
On Monday, the dollar gained 0.3% against the renminbi to 6.5142.
The dollar index was up 0.2% at 91.49.