Offshore Yuan Relieves Stress on CNY Exchange Rate Versus Dollar
Yicai Global
/SOURCE : Yicai
Offshore Yuan Relieves Stress on CNY Exchange Rate Versus Dollar

(Yicai Global) Dec. 19 -- Despite the yuan's onshore exchange rate (CNY) against the dollar slipping below the 6.95 threshold, the offshore yuan (CNH) has held its ground, easing the downward pressure on the CNY, an insider told Yicai Global.

The CNH pricing is more market-based and takes more factors into account, such as expectations for the global forex market, said Zhao Qingming, a researcher at the Research Institute of the China Financial Futures Exchange. The price difference is, in some ways, a reflection of overseas markets' expectations.

"Compared with the CNY market, the CNH market is more likely to react in advance, which will help reduce the downward pressure on the yuan," Zhao said.

The CNH market is dominated by large scale speculative trading between institutions, the percentage of forex trade for import and export purposes on the corporate level is relatively small, forex expert Han Huishi told Yicai Global. This makes the offshore yuan very sensitive to China's central bank policies. If the institutions expect the domestic market to see big changes in the future, they may immediately alter their strategies rather than engage in large scale unilateral gambling.

Given the existing yuan pricing mechanism, the yuan will very likely rebound against the dollar if the rate of the US Dollar Index rise slows, Han said.

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