RTRS Sources Flag CNH Funding Squeeze From State-Owned Banks, As We Touted On Friday

MNI (London) - RTRS sources note that “China's major state-owned banks moved to tighten yuan liquidity in the offshore foreign exchange market on Monday, actively selling U.S. dollars onshore. The goal was to prevent the yuan from falling too fast as China's A shares plunged, said one of the people.”

• Similar tactices were deployed at different stages in '23.
• We have covered tighter TN CNH funding on a couple of occasions over the last few days.
• TN forward points finished Thursday at -5.97 and have shown as high as +4.56 today (although that was before the RTRS story hit).
• Back on Friday we noted plenty of focus on CNH TN points which saw a meaningful move to marginal positive territory, reflecting tighter funding conditions (higher cost of shorting CNH).
• There hadn’t been much in the way of news flow on that side, leading us to suggest that policymaker guidance/action may be at play given the combination of the recent move higher in USD/yuan, the run of outflows from mainland Chinese equities and continued worry surrounding Chinese economic performance.
• Elsewhere, some desks thought that participants may have waited until Friday to deliver maximum impact re: the funding squeeze, given the potential for dealer book squaring into the weekend. It seems policymakers were not content with the squeeze seen on Friday, given the RTRS sources piece flagged above/further tightening today.
• A reminder that an early ’24 insight piece from our Beijing policy team noted that “the yuan will experience swings in 2024 as it grapples with several domestic and international factors,” based on their discussions with prominent economist Guan Tao.