Bloomberg - The overseas yuan - the exchange rate for Chinese currency trading outside of China - is about to become the focal point in financial markets around world.
The offshore currency is one of the few Chinese assets that trade around the clock, meaning it will come under scrutiny from investors bracing for any fallout from a potential default by China Evergrande Group on Monday. Other options for contagion will be limited due to holidays that will close trading in China and Hong Kong during the week.
The offshore yuan lost a total of 0.7% on Thursday and Friday, primarily due to a stronger U.S. dollar and selloff in emerging markets peers The currency now trading near its 50 - day moving average of around 6.4696 per dollar and may extend its weakening to test the 200-day moving average at 6.4737 if market sentiment worsens on Evergrande. A breach of the 200-day average opens up a path toward the level of 6.50, last seen on 23 Aug.
Chinese authorities were already told by the major banks that they won t receive interest payments due on Evergrande loans on Monday. It is also unclear whether Evergrande intends to pay about $84 million of interest on the money due Wednesday, Sept 23.
Policy makers and businesses alike are preparing for potential market contagion. On Friday, the People s Bank of China added to the yuan ($84 billion) of capital, which was sold in repo agreements by 7 million on net basis, the highest since February, in a bid to avert any financing squeeze.
According to Reuters, the Agricultural Bank of China, among the big-four state-owned lenders, issued bad debt provisions for its Evergrande exposure. Banks are readying themselves for liquidity squeeze, part of the reason behind dumping dollars in onshore swap markets, leading to tight liquidity conditions in the onshore yuan, say some analysts.
A staggered holiday schedule in Hong Kong and mainland markets complicates matters further. All offshore markets will be closed on Monday and Tuesday, though Hong Kong markets will remain open. Here s a list of Evergrande debt events and market schedules for the week ending August 24:
On September 20: All Hong Kong financial markets are closed and all markets in China are open. Evergrande stocks and dollar bonds trade in Hong Kong, with a default on its bank loans expected. The offshore Yuan trades all day, though traders won't be provided with a PBOC daily local fixing as reference. Tuesday, Sept 21: All closed onshore financial markets and all markets remain open in Hong Kong. Evergrande stocks and Eurobonds continue to trade in Hong Kong. Chinese Yuan trades throughout the day in absence of daily PBOC trading for a second session. Wednesday, Sept 22: All onshore financial markets close and all of the markets in Hong Kong reopen. Trading in Evergrade stocks and dollar bonds will take a break. The Chinese yuan trades with its onshore counterpart throughout the day, although Hong Kong holiday may lead to substantially lower volumes and worse liquidity conditions that day. Thursday, Sept. 23: All markets in mainland Hong Kong will open. Evergrande will decide whether or not to pay interest due on its dollar bond.