An employee removes Chinese one-hundred yuan banknotes from a counting machine (Photographer: SeongJoon Cho/Bloomberg)

Offshore Yuan Set for Weekly Gain Amid PBOC Intervention Signs

(Bloomberg) -- The offshore yuan headed for the biggest weekly advance since July, with suspected intervention by China’s central bank choking supplies of the currency and driving borrowing costs to an eight-month high.

The exchange rate in Hong Kong strengthened 0.5 percent for the week, the most since the five-day period ended July 29, and was little changed Thursday at 6.6650 per dollar as of 5:16 p.m. local time. While the city’s stock market will be shut Friday to mark the Mid-Autumn Festival, the Chinese currency will be traded. Onshore markets are closed and will reopen Monday.

China’s yuan has steadied of late amid increasing speculation that policy makers are propping up the currency before it enters the International Monetary Fund’s reserves on Oct. 1 and ahead of a Federal Reserve policy meeting next week. The one-week Hong Kong Interbank Offered Rate soared to 10.15 percent on Wednesday, the highest since Jan. 18, before slipping Thursday. China’s monetary authority has been selling dollars for yuan, according to Commerzbank AG.

“The Chinese central bank doesn’t want to make people short the offshore yuan and wants to maintain high cost of funding” to curb bearish bets on the yuan ahead of the Fed’s rate meeting, said Zhou Hao, an economist at Commerzbank in Singapore. “Liquidity is quite poor ahead of a holiday as well.”

Hibors Drop

The one-week Hibor rate fell to 8.99 percent on Thursday, paring this week’s increase to 4.86 percentage points, according to data from the Treasury Markets Association. The overnight rate dropped 21 basis points to 7.95 after reaching the highest level since February on Wednesday.

Lenders have in recent days tapped the Hong Kong Monetary Authority’s RMB liquidity facilities and Primary Liquidity Providers schemes, which provide liquidity support in response to requests, a spokesperson for the city’s de facto central bank said in an e-mail.