Yuan Approaches Five-Year Low Amid Concern Over Economy, Brexit

  • Currency impact from any MSCI inclusion to be marginal: SocGen
  • Interest-rate swaps decline to one-month low as PBOC adds cash

The yuan drew closer to a five-year low as concern over China’s economic slowdown and Britain’s vote on European Union membership spurred selling in riskier assets.

The Chinese currency traded within 0.1 percent of its low set in January after slumping the most in a month on Monday. The exchange rate fell 0.11 percent to 6.5917 a dollar as of 4:53 p.m., and dropped to its lowest level since 2014 versus trading peers including the yen and the euro.

Volatility in China’s financial markets is growing amid speculation authorities won’t add to stimulus even as the economic outlook deteriorates. The Shanghai Composite Index tumbled the most in three months on Monday before MSCI Inc.’s decision Wednesday on whether to add yuan-denominated shares in its global indexes. New polls indicating that support for the U.K. leaving the EU exceeded that for remaining in the bloc are adding to global angst.

Any impact on the yuan from MSCI inclusion of mainland equities will be marginal, according to Frances Cheung, Hong Kong-based head of rates strategy for Asia ex-Japan at Societe Generale SA. HSBC Holdings Plc estimates addition would spur inflows of as much as $30 billion. That compares with capital outflows of some $1 trillion last year.

The onshore yuan surged briefly in afternoon trading in Shanghai to post an advance for the day before returning to losses, according to China Foreign Exchange Trade System prices. The Chinese currency traded in Hong Kong was last trading down 0.07 percent at 6.6015 a dollar.

Volatile Stocks

Volatility in Chinese stocks climbed to the highest in three months on Tuesday amid some weak economic indicators and a wave of risk aversion in Asian equities on mounting concern over the U.K.’s future in the EU. Official data released on Monday showed China’s fixed-asset investment in the first five months trailed all 38 economists’ forecasts. The central bank is likely to release May data on new lending and aggregate financing as early as Tuesday.

In the money markets, the cost of one-year interest-rate swaps, the fixed payment to receive the seven-day repurchase rate, fell four basis points to 2.53 percent, data compiled by Bloomberg show. It earlier declined to 2.52 percent, the lowest in more than a month.

The People’s Bank of China injected a net 25 billion yuan ($3.8 billion) via open-market operations in the first two days of this week, after withdrawing 175 billion yuan last week.

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