RMB:Offshore CHN vs Onshore CNY

Over at a financial forum...

From CNBC: "The offshore yuan fell to 6.6915 against the greenback, the lowest rate of exchange since at least the last quarter of 2010 and a 2.1 percent discount to the onshore yuan's 6.5506 level. While the yuan is primarily traded on the mainland and subject to strict central bank supervision, its offshore counterpart is accessible to everyone.

The spread between the onshore and offshore yuan has now reached some of the highest levels in the pair's history – a clear indication of both volatility and intervention,

Markets generally expect the onshore yuan to continue depreciating against the dollar on the back of sluggish growth prospects, accelerating capital outflows and demand for overseas assets.

"The combination of weak cyclical and structural forces is seen working against the currency," HSBC analysts said in a research note. "In the near-term, there could be stronger dollar demand against the onshore yuan as the latter's depreciation expectations remain entrenched.""

"Continuing to prop it up (ONSHORE CNY) would take a toll on China's (still sizable) foreign exchange reserves, while straining the amount of spare cash in the banking system. 

Depreciation could result in a global market sell-off that ranges from Asia FX to broad equity market weakness," warned Nomura analysts in a recent note, adding that increased widening of onshore/offshore rates could also prompt authorities to intervene in offshore rates.

Maybank is betting the yuan to hit 6.7 per dollar by year-end while Nomura sees it at fair value of 6.9."

The Nattering One mused... You can pay me now, or pay me later, he's (King Dollar) banging on those cage bars at 99.5, and when he really breaks out, he's gonna jump right over 100 soon enough. 

China is better off to do another massive devalue, just like Aug last year, but the massive carry unwinds would tank markets all at once.  China is playing death by papercuts and so it shall be with the markets. 

The longer China plays this slow bleed out game, the more they have to prop, frying FX reserves, and creating "dollar" shortages internal, HK and Japan.  When they devalue small or big, the Yen goes up which pulls down the Nikkei, and the dollar goes up which pulls down the SP500 and anywhere else there are dollar carry's or dollar hedged trades, which is everywhere, thats why hes called the KING.  

At the current FX reserve burn rate, China might be able to go another 1-2 years with the slow bleed out. Then what???  Good news? Nope, this is self reinforcing, the longer it takes, the worse it gets.  

Why? The higher the dollar gets squeezed, the lower other currencies go putting China at a trade disadvantage. Imagine how the Saudi's feel with Riyal still tied to the King's ankle. Swing with the King Baby!!