(Yicai Global) March 28 -- The recent surge in the yuan-dollar central parity rate is related to overseas investors' pursuit of China's crude oil futures, reported Shanghai Securities News today, citing an analyst.
The overseas investors seeking China's crude oil futures triggered a surge in conversion of the dollar to the offshore yuan for investment purposes, said Li Liuyang, a forex analyst. The latest surge is different from the past, he said, adding in the past, the U.S. dollar index used to drop first, pushing the other currencies higher. However, the offshore yuan exchange rate surged quickly this time and drove the onshore yuan exchange rate higher, weighing down the U.S. dollar index, Liu suggested.
The yuan-denominated crude oil futures, introduced on March 26, proved to be cost-effective compared with the international crude oil futures after the currency conversion. Many European crude oil investors poured in, seeking China's crude oil futures after the European market opened. The yuan exchange rate surged at around 3 p.m. and after 4.30 p.m. on March 26 and at 2.30 p.m. yesterday.
The Chinese yuan strengthened for a second day in a row against the dollar to the highest level in 31 months yesterday as the greenback foundered. The onshore yuan surpassed 6.25 against the dollar at one point, with the offshore yuan also exceeding 6.24. The central parity rate of the yuan gained 377 basis points against the dollar to 6.2816 yesterday, a new high since August 2015.
The overseas institutions also purchased more yuan assets via the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect. On March 26, there was a net cash inflow of CNY2.02 billion (USD320 million) via the Shanghai-Hong Kong Stock Connect and CNY1.81 billion via the Shenzhen-Hong Kong Stock Connect.
The cash flow in the capital market boosted the exchange rate of the offshore yuan, while appreciation of the offshore yuan affected the sentiment among traders in the onshore market, Li commented.