Yuan’s Offshore Discount Shrinks as Stronger Fixings Deter Bears

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The offshore yuan’s discount to the onshore spot rate shrank to the smallest in three weeks amid speculation China will prevent depreciation as it pushes for reserve-currency status at the International Monetary Fund.

The People’s Bank of China raised its reference rate for the yuan to 6.1155 a dollar Tuesday, the first increase in three days. Sentiment is improving as an IMF team visits the Asian nation to discuss adding the yuan to its Special Drawing Rights basket of reserve currencies. China has appointed yuan-clearing banks in 11 cities around the world in the past year in an effort to push its use overseas.

The yuan in Hong Kong, which trades freely, climbed 0.05 percent to 6.2105 a dollar as of 4:36 p.m. local time, according to data compiled by Bloomberg. That was 0.03 percent weaker than the Shanghai rate, which is constrained by a daily fixing and closed little changed at 6.2084. The gap between the two has been as big as 0.5 percent this year.

“The central bank sent a very strong signal that it favors a stable yuan with the higher fixing,” said Ho Man Chun, a strategist at Bank of Communications Co.’s Hong Kong branch. “The market is confident that the yuan will remain strong as China bolsters the case for it to be granted reserve status.”

Any decision by the IMF to include the yuan in its SDR basket would encourage central banks to boost holdings of the currency. At least $1 trillion of global reserves will switch into Chinese assets should the currency win reserve status this year, according to estimates by Standard Chartered Plc and AXA Investment Managers.

— With assistance by Tian Chen

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