(Yicai Global) Aug. 23 -- The yuan has gained more than 1,000 pips over the past week, since it paled to as much as 6.95 against the dollar on Aug. 15 and sparked a panic that the redback might finally weaken beyond the dreaded 7 mark.

China's currency has had a pitiful year against the dollar so far, tumbling more than 10 percent. So Yicai Global spoke to traders to gather their thoughts on shorting the yuan and why it struggles to pass beyond that 7 milestones, with several suggesting that short sellers do not dare to push their luck.

"The yuan's offshore trading volume is small right now, nobody is willing to take risks around the 6.9 figure," said one offshore foreign exchange trader who wished to remain anonymous. "Because of the low number of transactions, the value can rise and fall quickly. When Tencent shares were slumping last Wednesday [Aug. 14], I went long on the yuan.

"I saw results the next day. It gained to 6.93 at the opening and strengthened to as much as 6.87 after news of a Chinese delegation visiting the United States and offshore liquidity tightening. Before the news even came out, the market was already self-correcting."

The People's Daily, the official newspaper of the Chinese Communist Party, reported on Aug. 15 that Wang Shouwen, deputy Minister of Commerce and a representative for international trade negotiations, would visit the US in late August to meet with senior US Treasury official David Malpass.

Later that day, foreign media reported that due to recent fluctuations in yuan exchange rates, banks were unable to deposit yuan funds abroad through interbank current accounts. Several Chinese and foreign-backed funds told Yicai Global that day that there was an obvious tightening of the offshore yuan's liquidity. Reuters' terminal showed that overnight interest rates for yuan swaps rose 264 pips to 3.57 percent, compared with 2.37 percent in intraday trading.

"There have been no offshore big shorts this year," the trader continued, saying there were at least four or five times more in 2015 and 2016. Hedge funds that did short the yuan then got crushed, so this year they are not taking such a strong position, several traders agreed, adding that funds will forecast a stronger yuan whatever state China's fundamentals look like in the long run.

Feng Siguo, managing director of macro trading at Standard China Greater China, agreed that hedge funds have restrained their short selling this year, and said some cashed out at around 6.75. The yuan has been particularly volatile this year while the central bank has made more market-based operations, he added, saying these are all positive developments.

On Aug. 21, comments from United States President Donald Trump weighed further on the dollar to help the yuan. Trump said that he disagrees with Federal Reserve Chairman Jerome Powell's decision to raise interest rates.

Where the yuan goes from here remains to be seen, there are too many uncertainties to tell. China-US trade talks, the American economy and the divergence of monetary policies around the world can all take their toll on the redback, but for now, it seems safe to assume that the shorts are in short supply.

Editor: James Boynton