According to the latest data from the China Foreign Exchange Trade System (CFETS), both the offshore (CNH) and onshore (CNY) renminbi appreciated against the US dollar in August.
On August 31st, the CNH spot rate closed at 6.7180, representing a gain of 0.52% compared with the end of the previous month, while the CNY spot rate settled at 6.7198, up 0.41% over the same period. The daily average spread between onshore and offshore rates, measured by the absolute value of the CNY-CNH differential, narrowed to 32 basis points, a reduction of 6 basis points from July. Meanwhile, the CFETS renminbi exchange rate index, along with the BIS currency basket and SDR currency basket indices, declined by 0.31%, 0.57%, and 0.22% respectively, when compared with the end of the previous month.
Where the figures stand
Turning to offshore yuan deposits, Hong Kong and Taiwan both recorded increases in their offshore renminbi deposit bases during July. Hong Kong's renminbi deposits expanded by 2.9% to reach RMB 1.12536 trillion, while Taiwan's deposits rose by 1.2% to RMB 106.544 billion. Cross-border trade settlement in renminbi via Hong Kong climbed 8.3% to RMB 1.383722 trillion. In Macau, renminbi deposits came in at MOP 70.66 billion (equivalent to RMB 59.016 billion), up 4.8% month-on-month in local currency terms, or 3.9% when measured in renminbi.
In the derivatives market, the one-year CNH swap point closed at -1,824 basis points, up 6 basis points from the end of last month, whereas the one-year CNY swap point ended at -1,823 basis points, down 21 basis points. The average absolute daily spread between onshore and offshore swap points narrowed to 11 basis points, a decline of 5 basis points. Trading volumes at the Hong Kong Stock Exchange for USD/CNH futures standard contracts reached 1.3738 million lots in August, down 5.7% from the prior month, with open interest at the month-end increasing 7.3% to 32,100 contracts. Option contracts traded at HKEX totalled 25, up sharply by 2,400%, while open interest rose 12.7% to 213 contracts.
New data for July shows that the Singapore Exchange recorded USD/CNH futures standard contract volumes of 4.155 million lots, down 16.7% compared with June, while month-end open interest increased 6.6% to 214,100 contracts. Options trading on the SGX fell 53.9% to 5,032 contracts, with open interest down 3.9% to 10,568 contracts.
Bond issuance and money market conditions
The offshore renminbi bond market saw 100 new issues in August, 13 fewer than in July, with total issuance amounting to RMB 109.162 billion, a month-on-month decrease of 29.0%. In the money market, at the end of August, CNH HIBOR fixings for overnight, one-week, three-month, and one-year tenors stood at 1.3815%, 1.4176%, 1.6270%, and 1.6694%, respectively. Compared with the previous month's end, these rates rose by 24 basis points, 2 basis points, and 4 basis points for the first three tenors, while the one-year rate eased by 3 basis points. The average spreads between offshore and onshore interbank lending rates for overnight, one-week, three-month, and one-year tenors were -1, 2, 18, and 21 basis points, respectively, holding steady for overnight and three-month tenors, while narrowing by 3 and 2 basis points for the other two. The three-month and one-year CNH forward implied yields closed at 1.3116% and 1.3626%, up 8 and 6 basis points respectively, with the one-week tenor rising 1 basis point to 1.1448%.
Participation by overseas institutions
As of the end of August, a total of 257 foreign institutions had joined the domestic interbank foreign exchange market, an increase of 2 from the previous month. This group comprises 29 offshore clearing banks, 77 overseas participating banks, and 70 overseas central bank-type institutions. In the domestic interbank local currency market, the number of foreign institutions and their products reached 5,872, down 4 from the previous month-end. Within this total, there were 181 central bank-type institutions, 504 commercial banks, 251 non-bank financial institutions, 44 medium- and long-term institutional investors, and 4,892 investment products issued by financial institutions, with changes of unchanged, plus 3, plus 1, unchanged, and minus 8 respectively.
In August, trading volumes by overseas institutions in the domestic interbank FX market totalled RMB 2.129151 trillion, down 27.8% month-on-month. This breaks down into spot transactions of RMB 131.26 billion (down 28.5%), derivatives turnover of RMB 634.001 billion (down 29.3%), and foreign currency lending and repo activity of RMB 1.363889 trillion (down 27.1%). In the domestic interbank money market, overseas institutions' turnover reached RMB 1.30852 trillion, a decrease of 9.7%. For the domestic interbank bond market, overall turnover by foreign entities was RMB 1.406756 trillion, down 10.5% from the prior month. Among these, overseas central bank-type institutions traded RMB 221.807 billion (down 6.9%), overseas commercial banks recorded RMB 974.671 billion (down 8.4%), overseas non-bank financial institutions including medium- and long-term investors posted RMB 50.434 billion (down 46.4%), and investment products issued by overseas financial institutions generated RMB 159.843 billion in turnover (down 8.6%).