Yuan Completes Second Weekly Gain on Stimulus Bets, IMF Review

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The yuan posted a second weekly advance on speculation China’s leadership will support the yuan’s case for being named a global reserve currency and announce more stimulus to revive a slowing economy.

A preliminary manufacturing index fell to the lowest in a year, according to data from HSBC Holdings Plc and Markit Economics Thursday. China is making the yuan more “freely usable” in order to be included in the International Monetary Fund’s Special Drawing Rights basket of reserve currencies, People’s Bank of China Governor Zhou Xiaochuan said in Washington on April 18. The IMF’s board is scheduled to conduct a twice-a-decade review in October.

“The PMI was weak, spurring speculation that the government will announce more stimulus to boost the cooling economy and support the yuan,” said Ho Man Chun, a strategist at Bank of Communications Co.’s Hong Kong branch. “The Chinese government will keep the currency stable for SDR inclusion.”

The yuan advanced 0.05 percent for the week and on Friday day to close at 6.1950 a dollar in Shanghai, China Foreign Exchange Trade System prices show. In Hong Kong, the currency was unchanged from April 17 and rose 0.02 percent Friday to 6.1946 as of 5:11 p.m. local time, according to data compiled by Bloomberg.

The People’s Bank of China lowered the proportion of deposits that major lenders must set aside as reserves by one percentage point to 18.5 percent effective April 20, adding to stimulus that included two interest-rate cuts since November and easing of home-purchase rules. The manufacturing flash Purchasing Managers’ Index from HSBC and Markit Economics was at 49.2 for April, missing the median estimate of 49.6 in a Bloomberg survey, which was also March’s final reading. Numbers below 50 indicate contraction.

The central bank raised the onshore yuan’s daily reference rate by 0.04 percent this week and 0.07 percent Friday to 6.1241 a dollar. That’s the strongest level since Jan. 20. The gap between the onshore spot rate and the fixing was 1.16 percent, within the 2 percent limit.

— With assistance by Tian Chen

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