CNH Hibor rates to come down in coming weeks - Danske

According to analysts from Danske Bank, the spike in the Hibor rate does not signal an outflow from China and they see the rate falling in coming weeks.

Key Quotes:

“CNY depreciation expectations increased after the G20 meeting and rising expectations of a potential Fed rate hike this year has put some depreciation pressure on emerging market currencies including CNY/CNH.”

“ The People’s Bank of China (PBoC) has sent a signal to defend the 6.70 CNY level as state-owned agent banks have apparently been seen selling USD and buying CNH in the offshore market close to the 6.70 level (CNY currently trading at 6.67).”

“CNH liquidity is tight around the Mid-Autumn Festival as demand picks up. The Hong Kong Monetary Authority has not appeared keen on providing the liquidity. Demand for CNH should come down next week when the holiday is over and CNH Hibor rates normalise (Thursday is the day of the Mid-Autumn Festival and Thursday and Friday are public holidays in China)."

“The PBoC may be using the rising demand for liquidity around the holiday as a way to squeeze up Hibor rates in a preemptive move to deter speculation on a weaker CNY. We expect CNH Hibor rates to come down again in coming weeks as the Fed holds off from hiking and seasonal demand again declines.”