OFFSHORE YUAN TRADING SOARS AMID TRUMP BARRAGE
Average daily volume of US$1.7b on Cboe platform last month
TURNOVER in the offshore yuan has reached unprecedented levels, spurred by United States President Donald Trump’s broadsides against Chinese currency practices and the protracted trade dispute between the world’s two biggest economies.
On the foreign exchange (forex) trading platform of Cboe Global Markets, average daily volume in US dollar-offshore yuan jumped to a record US$1.7 billion (RM6.99 billion) last month, from US$421 million a year earlier.
EBS Market, NEX Group Plc’s forex trading system, also saw a new high in offshore yuan transactions last month, exceeding the previous peak by 17 per cent. The volumes, which represent a portion of the offshore yuan market, surged as the yuan slid for a fourth straight month.
The drop raised speculation that China was deliberately weakening the currency amid its intensifying tariff impasse with the US.
Last week’s announcement by the People’s Bank of China (PBoC) that banks would resume use of the counter-cyclical factor in setting the yuan’s daily reference rate might further fuel activity, in the view of Brad Bechtel at Jefferies.
The fixing adjustment works to restrain market influences, meaning it will have to compete with forces such as tense trade negotiations and slowing Chinese growth. That tug-of-war should increase volatility, said Bechtel.
“If anything, it creates a more tradeable market,” said Bechtel, the firm’s global head of foreign exchange.
The PBoC is “pushing back against what the market’s doing, but at the same time, there are still a lot of variables”.
The offshore yuan dropped 0.2 per cent to 6.8360 per US dollar as of 11.39am in Hong Kong yesterday.
It has slumped about six per cent since mid-June as the two nations exchanged tit-for-tat tariff threats, adding to swings in emerging-market currencies.
The pace of the drop prompted the PBoC to ask Chinese lenders to discourage “herd behaviour” and momentum-chasing in the currency.
The offshore yuan’s weakness was likely driven by the same momentum-chasers that the PBoC was trying to curtail, according to Mingze Wu, a currency trader at INTL FCStone, here.