China’s offshore yuan firmed above the onshore rate on Tuesday morning for the first time since October, as traders pointed to state intervention and rate arbitrage strategies for pushing the currencies abruptly together.
The CNH, which has been gaining sharply in recent trading days, crossed to change hands as firm as 6.5660 per dollar around 0323 GMT, the first time it has been stronger than the onshore rate since October 29, according to Reuters calculations.
At the same time, the cost of borrowing yuan offshore has spiked as liquidity drains out of the offshore market. China’s offshore yuan implied overnight deposit rate hit a record high of 94 per cent in Hong Kong in volatile morning trading on Tuesday.
The central bank has allowed the onshore yuan to weaken since August, when it conducted a sharp one-off depreciation that knocked around 3 per cent off the currency’s value in just a few days, and that has caused many to flee yuan assets on expectations of further easing.
As a result, offshore yuan has been trading at a deep discount — as high as 2 per cent on some days — to the onshore exchange rate.