Yuan Under Pressure: CNH Spread at 217 bps
The offshore yuan stands at 6.7254 per dollar, and the spread to onshore reaches 217 basis points. What the PBoC is doing and what ING expects.
Key Takeaways
- The offshore yuan (CNH) costs 6.7254 per dollar, the onshore yuan (CNY) 6.7037.
- The spread between the two hits 217 basis points and triggers a stress alert.
- The PBoC supports the yuan via its fixing; ING sees it at 6.60 in twelve months.
The Chinese yuan is under pressure. On September 29, the onshore yuan (CNY) trades at 6.7037 per dollar and the offshore yuan (CNH) at 6.7254. The 217-basis-point gap is treated as a stress signal. The triggers are higher US rate expectations and a strong dollar.
The Offshore Market Prices In Weakness Earlier
The onshore yuan (CNY) trades in China under central bank supervision, while the offshore yuan (CNH) trades freely abroad. When CNH drifts sharply higher, international investors are betting on a weaker currency. According to Finanzmarktwelt, the spread has now reached 217 basis points, breaching the alert threshold.
The report cites higher US rate expectations, which lift the dollar against a range of currencies. Add the economic fallout of the Iran war, above all rising oil prices. For China, a major energy importer, that is a burden.
The PBoC Refuses to Let the Pressure Through
The People's Bank of China (PBoC) is slowing the depreciation. Rather than fully exposing the onshore rate to outside pressure, it adjusted the fixing in small steps between September 18 and 21. The current fixing sits at 6.7411 per dollar, the weakest yuan level in more than three years.
The fixing sets the band within which the onshore rate may move each day. The central bank thereby controls the pace of depreciation without preventing it. It aims to keep the market orderly, not to force a trend reversal.
Longer Term, ING Sees a Stronger Yuan
Dutch bank ING remains confident despite the current weakness. Its twelve-month outlook: 6.60 yuan per dollar, about 1.5 percent firmer than today. The backing comes from China's current account surplus, which at $735 billion makes up 3.8 percent of economic output.
For investors, that means the dollar dominates in the short term, and a wider CNH premium remains a warning sign of capital-outflow fears. In the medium term, trade surpluses argue for stabilization. Anyone holding yuan positions should keep an eye on the CNH-CNY spread and the PBoC's daily fixing signals.