Hong Kong's yuan funding cost falls as short-sellers squeezed

Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustration, January 21, 2016. REUTERS/Jason Lee/Illustration/File Photo

HONG KONG (Reuters) - Hong Kong’s overnight yuan deposit rate fell to around 10 percent on Monday morning from Friday’s high of 87 percent, as yuan short-sellers were dampened by the recent high funding cost for the Chinese currency.

The CNH Hong Kong Interbank Offered Rate benchmark (CNH HIBOR), set by the city’s Treasury Markets Association (TMA), was fixed at 14.05 percent on Monday, compared to 61.33 percent on Friday.

“Yuan short-sellers have been dampened and there’s less yuan borrowing in the market to short the currency, which I think may have led to the decline of yuan funding cost,” said Zhou Hao, senior EM Economist Asia at Commerzbank.

China’s offshore yuan posted its biggest weekly rise last week, with both onshore and offshore yuan rallying, predominantly jacked up by yuan borrowing costs offshore.

Interbank rates for the offshore yuan have surged since the beginning of the year, suggesting China is keen to squeeze speculators by making it prohibitively expensive to short-sell the yuan.

Traders and analysts held the view that Beijing wished to deter speculators from pushing the Chinese currency below the 7-per-dollar threshold ahead of U.S. President-elect Donald Trump’s inauguration on Jan. 20.

The Hong Kong Monetary Authority’s (HKMA) 10 billion yuan ($1.45 billion) quota for intra-day yuan funding was exhausted on Thursday and nearly used up on Friday morning, according to Reuters data.

Reporting by Michelle Chen; Editing by Jacqueline Wong