Yuanna See Some Intervention? Manna From Heaven Pattern in CNH

iFeng: 离岸人民币三天跌700点2小时急涨500点 到底发生了什么

AFR: China seeks to contain widening yuan spread
A three-month ban on settling offshore clients' yuan transactions in the onshore market was imposed Tuesday by the People's Bank of China, they said, asking not to be identified because they aren't authorised to speak publicly on the matter. The clampdown comes as the growing offshore-onshore spread makes it profitable to buy the currency in Hong Kong and sell it in Shanghai. The PBOC didn't immediately respond to questions regarding the matter, which was reported earlier by Reuters.
Usually the gap closes quickly:
The faster rate of convergence in the latter case—when CNH trades at a discount to CNY—implies that capital controls are less restrictive with respect to arbitraging capital inflows to the mainland than outflows from the mainland. This difference may reflect the fact that recent liberalization measures have focused more on easing constraints on inflows than outflows (see section IV below), such as the opening of channels for renminbi denominated FDI and QFII that can be used to bring offshore renminbi funds onshore.
China is stopping capital from flowing into China, which means the gap will persist. Instead of CNY and CNH meeting in the middle, CNH will remain lower because arbitrage is being restricted. This creates a greater depreciation signal. It tells the market, CNY is the artificial price and CNH is the real price, and that both CNY and CNH should be trading lower.
The PBOC said last week that it would allow more foreign institutions with significant volumes to trade in the onshore foreign-exchange market, which it said will help narrow the difference. The PBOC is unlikely to allow the gap to stay persistently above 1000 so-called pips because it hurts sentiment, said Zhou Hao, an economist at Commerzbank in Singapore. The offshore yuan was last trading at 6.5760 a dollar in Hong Kong and the rate in Shanghai was 6.4902, leaving a spread of 858 pips. The difference exceeded 1200 pips on Wednesday before the offshore yuan erased a 0.5 per cent loss in late trading.
Notice the down spike in the chart above, the 天上掉馅饼 or Manna From Heaven pattern. Intervention against the market trend is a losing bet. The PBoC is shelling out USD to pay for free chairlift rides back to the top of the mountain.

No comments:

Post a Comment