The offshore RMB financing environment is significantly loose!

Today, as the US dollar index weakens, Hong Kong's offshore RMB financing costs fell to the lowest since record in 2013, and constitutes certain variables to the RMB exchange rate. Official data shows that Hong Kong's RMB interbank rate rate fell by 11 basis points in one month to 1.46%.

Analysts believe that the decline in offshore RMB financing costs is mainly due to the weakening of the US dollar exchange rate, and market expectations that regulatory authorities have no need to interfere in the foreign exchange market for the time being. In addition, global investors have fled US dollar assets on a massive scale, which has benefited the RMB.

Rate distribution drops sharply

The key indicator for measuring offshore RMB liquidity - the offshore RMB Hong Kong Interbank Offer (CNH HIBOR), showed on Tuesday that most major term interest rates fell; among which the two-cycle HIBOR (HICNH2WDF=) fell 11 basis points to 1.18606%, setting a record low. RMB interbank rate offer fell by 11 basis points in a month to 1.46%, the lowest since record in 2013. One-year HIBOR (HICNH1YDF=) fell to 2%, hitting a one-week low.

Overnight HIBOR (HICNHONDF=) rose 24 basis points to 0.95833%, reaching its high since April 11, 2025; the one-cycle HIBOR (HICNH1WDF=) rose slightly to 1.15030%, reaching its nearly weekly high.

The overnight interest rate is usually around 1% to 3%. If liquidity is tight, the interest rate may surge. However, the Hong Kong Monetary Authority has liquidity arrangements for repurchase agreements, so there will be no long-term tension.

In addition, since the offshore RMB does not have a real money market, institutions mainly obtain funds through the swap market. Usually, the implied interest rate of overnight swaps is the interest rate of the money market. Generally, the implied interest rate of overnight swaps should be between 1% and 2%.

The above interest rate distribution data reflects the difficulty of traders obtaining RMB in the Hong Kong market. The offshore yuan fell about 0.2% to 7.3103 against USD on Tuesday (22nd), but rebounded about 2% from the historical low set earlier this month. At present, the offshore RMB is relatively liquid.

Recently, the weakness of the US dollar index has alleviated the need for relevant parties to interfere in the RMB exchange rate. Similar to other currencies around the world, the yuan benefits from funds escaping U.S. assets. Ju Wang, head of foreign exchange and interest rate strategy at Greater China, said offshore RMB financing costs have declined because the US dollar is quite weak and regulators do not need to interfere in the foreign exchange market. The loose offshore financing environment will help China maintain the RMB exchange rate to resist tariff risks.

There may be variables

Today, the Asia-Pacific market is much more stable than last night's US stock market. Last night, a large number of investors fled U.S. assets, hitting Wall Street and the dollar, and concerns about Fed independence put new pressure on U.S. Treasuries. But the losses in Asia are relatively limited, which has sparked discussions about the possibility of funds relocating funds to stocks in the region, although the impact of tariffs on economic growth remains a major drag. Today, the yen rose above 140 against the US dollar for the first time, hitting a new high since September last year.

After Trump initiated "peer tariffs", U.S. financial markets experienced drastic turmoil. The simultaneous decline of the US stock market, bond market and the US dollar exchange rate has triggered global doubts about the "dollarization" trend may intensify, and the global capital market has entered an era of high uncertainty. George Saravelos, global director of foreign exchange research at Deutsche Bank, pointed out that this is due to the repeated foreign policy of the Trump administration, which has led to global funds withdrawing from dollar assets, challenging the dollar's position as the world's major reserve currency.

However, it should be noted that there may also be variables in the recent trend of the US dollar. The dollar fell to its lowest level since December 2023 this week. Ken Cheung, chief Asian Forex strategist at Ruisui Bank, said a large number of bearish positions, technical and real yield differences indicate that the dollar may rebound, although the gains may be limited by negative news from the dollar.

Gary Schlossberg, global strategist at Wells Fargo, also said that as the dollar weakens, more and more investors choose to turn their assets to traditional safe-haven assets such as gold, yen, Swiss francs and German government bonds. But he stressed that despite the recent pressure on the US dollar, its market depth and liquidity are still attractive and are not easily replaced completely. Although some people believe that the euro may become a replacement currency for the US dollar, Europe's problems are also serious.

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