Larry Levinson: The free-wheeling trading of China’s currency in Hong Kong has pushed the “redback” to its widest discount to its mainland counterpart since China relaxed its control.
The so-called “off-shore yuan” trade saw the currency sell for a discount of as much as 2.5% to the value of the “onshore” currency, the Wall Street Journal said.
A year ago, China began relaxing currency rules, seeking to encourage the use of trading outside the country. Currently, Hong Kong is the only market where the yuan is freely traded.
The discount narrowed today, though it was large compared with previous trading. U.S. dollars (NYSE:UUP) were trading for 6.3935 yuan in the onshore market and 6.4925 in the Hong Kong market, amounting to a discount of about 1.5%, the paper said.
Traders are seeking USD worldwide as stock markets flounder amid fears of an economic slowdown.
Demand for the yuan has generally kept prices higher for the currency as traders anticipate that China’s desire to see the yuan become a widely traded currency will add to its value.
However, China’s leaders have traditionally loathed the kind of arbitrage opportunities that can arise from trading in different markets, although they have yet to introduce rules to narrow the spread.
The WisdomTree Dreyfus Chinese Yuan ETF (NYSE:CYB) gives investors a way to profit from the currency trade.
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