China Signals Yuan Volatility Prevention Ahead of IMF SDR Decision

The yuan stayed near a 12-week low on signs China will prevent big swings in the currency before the International Monetary Fund makes a final decision on whether to grant it reserve status.

IMF staff recommended earlier this month that the yuan be added to its Special Drawing Rights basket, alongside the dollar, euro, yen and pound. The Washington-based lender’s executive board will vote on the inclusion on Nov. 30 and approval is seen as all but certain as the fund’s major shareholders including the U.S. have said they’ll support it.

“Any massive yuan gain or depreciation is unlikely as there’s less than one week to go for the IMF decision,” said Stella Lee, president of Success Wealth Management Ltd. in Hong Kong. Investors are waiting for the final decision and after that they’ll switch back to focusing on China’s economic fundamentals, she said.

The yuan closed little changed at 6.3895 per dollar in Shanghai, China Foreign Exchange Trade System prices show. It fell to 6.3955 on Monday, the weakest level since August. The People’s Bank of China cut the daily fixing by 0.03 percent to a 12-week low of 6.3888. In Hong Kong’s offshore market, the yuan was 0.6 percent weaker than the onshore rate.

Inclusion in the SDR would be credit positive for China as it would support market-oriented reforms including gradual capital-account liberalization, Moody’s Investors Service analysts Atsi Sheth and Marie Diron wrote in a report dated Nov. 23.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza