Offshore Yuan, which is largely traded in Hong Kong and not subjected to 2% daily limit from central parity set by People's Bank of China (PBoC) everyday, is leading the drop in Yuan today further widening the spread between two.
Offshore Yuan has fallen to lowest level in five years today, trading at 6.615 per Dollar, about 0.72% weaker. Onshore Yuan on the other hand is down just 0.52%, trading at 6.52 per Dollar.
The figure, shows Yuan's bull run against Dollar, which was in effect since 2005 basically began its end in 2014 but spread between the two counterparts were relatively smaller, which started changing from October, 2014 but basically in August last year spread really got out of hand. After almost converging in November, spread has again started widening after International Monetary Fund (IMF) included Yuan in its currency basket. Analysts point out, with IMF decision, PBoC has lesser incentive to keep Yuan strong and controlled, since in August it indicated that it would give greater voice to market rate (spot offshore), while setting its central parity.
This spread is an opportunity for arbitragers to buy Yuan cheap in Hong Kong and sell it Mainland, but that trade won't be an easy one due to PBoC's crack down on banks over speculative and doubtful cross border transactions.
