After suspected “nuclear-weapon”-like intervention from the PBOC, the gap between offshore traded yuan, or USD/CNH, to its onshore-traded counterpart, USD/CNY, has all but vanished over the past 24 hours.
The 5-minute tick chart below, courtesy of Thomson Reuters, shows how the gap between offshore and onshore trade yuan has narrowed in recent days.
Suspected intervention by the PBOC in the offshore market, conducted through its network of state-owned banks, has driven the USD/CNH down from a high of 6.75 last week to its current level of 6.5759.
It now sits only 59 pips above the onshore yuan level of 6.5700.
The suspected intervention by the PBOC has certainly created an impact, and been painful for recent short-sellers.
As this chart of overnight offshore yuan HIBOR reveals, the suspected intervention from the PBOC all but evaporated offshore yuan liquidity on Tuesday, sending the daily fixing rate to a record high of over 66%.
As my collegue Greg Mckenna wrote earlier this morning, it put the squeeze on yuan short sellers who need to borrow the currency to support their bearish bets.
While plenty still expect that the yuan will continue to weaken against the US dollar in the year ahead, traders will now think twice before initiating further bearish bets.