Its a hectic day in the yuan market
Borrowing rates if you want to short the offshore yuan have blown out. Hugely.
- Overnight yuan HIBOR to record 66.8% (from yesterday's 13.4%)
- PBOC's brutal offshore yuan short squeeze - more
Which has narrowed the gap between the onshore (CNY and offshore (CNH), with the CNH trading stronger than CNY, a huge reversal of last week's record gap between the two.
More from Bloomberg (bolding mine):
"Closing the gap is one way of damping depreciation expectations," said Khoon Goh, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. "There is still pressure for the yuan to weaken, given the deflation risks and policy divergence with the US. But for now, China doesn't want to tolerate further sharp moves."
"The main theme for the authorities is to prevent the yuan from flowing offshore because that would give investors a chance to borrow yuan and short the currency overseas, putting pressure on the exchange rate and widening the onshore-offshore gap," said Ken Peng, a strategist at Citi Private Bank Inc. in Hong Kong. "Although the yuan's short-sellers may be less aggressive now as curbs are tightened, they are likely to come back as expectations for further declines remain strong. So the small gap is likely to be temporary and the yuan still has further room to weaken."
