CNH Surges as offshore funding cost skyrocket

The hand of the state has been speculated to be behind a rally in China’s financial markets since Moody’s said May 24 the nation’s efforts to cut leverage would be insufficient to curb debt. On Friday, China said it’s considering changes to the way it calculates the yuan’s daily reference rate against the dollar, a move that’s likely to reduce exchange-rate volatility while undermining efforts to increase the role of market forces in Asia’s largest economy.

“The sharp gain in the offshore yuan is partially due to the unwinding of short yuan positions because the high offshore yuan funding cost has made the currency too expensive to short,” said Stephen Innes, a senior Asia-Pacific currency trader at Oanda Corp. in Singapore. “Bears with short yuan positions would need to cut their exposure.”

The overnight yuan interbank rate in Hong Kong, known as Hibor, surged 15.7 percentage points on Wednesday to 21.08 percent, the highest since Jan. 6, while the offshore yuan’s overnight deposit rate jumped to 60 percent.

The increase in yuan funding costs is an increasing signal that authorities are intervening, said Nathan Chow, a Hong Kong-based economist at DBS Group Holdings Ltd. Officials may be reacting to prevent a negative reaction from Moody’s downgrade, he said.

 

Bloomberg

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Senior Currency Trader and Analyst at OANDA
Stephen has over 25 years of experience in the financial markets and specializes in Asian currencies at OANDA. After having started his trading career with NatWest Bank, he is currently based in Singapore as a Senior Currency Trader and Analyst with OANDA, focusing on the movement of the Aussie Dollar and ASEAN Currencies. Stephen has an extensive trading experience in Interest Rate Futures, Money Markets and Precious Metals. Prior to joining OANDA, he worked with organizations like Cambridge Mercantile, Nat West, Garvin Guy Butler, Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes
Stephen Innes

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