1. Wednesday's rally is driven by the offshore RMB, offshore RMB began to rise in the Asian session, driven by the rise of offshore RMB during the European session, without signs of central bank intervention;Are there really that many yuan bears out there, or is there very high credit demand from borrowers issuing yuan bonds and debt? Or has the supply been restricted...?
Except for a critical moment, the central bank will not significantly interfere with the offshore RMB market, frequent intervention will give the market a chaotic signal.
2. in the RMB soaring at the same time, the dollar weakened across the board major currencies, we can see this time the international price of gold also out of the trend, the yuan rose more because the dollar index plummeted
3. Bloomberg, "China is said to have prepared the exchange rate risk response plan, forced settlement and reduction of US debt holdings under consideration" reported
4. the rising cost of shorting the RMB, which is the most important point.
RMB overnight HIBOR has dropped, but still high, and 7-day interest rate continued to rise to nearly 15%, indicating that the cost of shorting RMB is still high.
ZeroHedge reports HIBOR hit 80% overnight:
This follows after Chinese policymakers explicitly urged SOE banks to sell foreign currencies, and further "punish" short sellers.Yuan bulls, or bear skeptics, have argued the Chinese could do exactly as they're doing now, and effectively destroy the offshore yuan market. Yet as this comment shows, the market doesn't respond to a government destroying markets in its own currency by increasing its confidence in the currency. In the short-term, there's a big positive impact on the exchange rate from the government's point of view, but if the fundamentals don't shift and reverse the intermediate or long-term trend, the net effect is an erosion of confidence. Since August 2015, every one of these interventions has also proved a great entry point for bears.
...“Given the recent capital controls, the channels for domestic institutions and retails to bring out onshore cash to the offshore market have also been tightened,” said Becky Liu, a rates strategist in Hong Kong at Standard Chartered Plc. “There is a lack of supply of yuan liquidity.”
...Paradoxically, the measures have only heightened skepticism among currency watchers: “We know the capital controls aren’t working because that’s why they’re having to raise the overnight deposit rate so aggressively by the PBOC, which is still basically the guiding hand in the offshore yuan market,” said Michael Every, head of financial markets research at Rabobank Group in Hong Kong. “It’s an incredibly aggressive tactic.”