Yuan Fixing Goes From Obscure to Obsession for Global Traders

It’s the new must-watch indicator for markets worldwide, with the power to move prices from Tokyo to London and Chicago.

The Chinese central bank’s daily fixing for the yuan, long overlooked by investors outside the country, has transformed into a global market-moving event after a devaluation on Tuesday took almost everyone by surprise.

For the last three days, it has influenced everything from Asian currencies to commodities and U.S. index futures, prompting traders around the world to change their schedules so they can react to the announcement that comes each day at 9:16 a.m. Hong Kong time.

“We are waking up early and all my friends have the yuan on the top of their screens,” said Dhiraj Bhutoria, a director at Varun Tradecom Pvt, a Kolkata-based securities brokerage.

After years as one of the least-volatile major currencies, the yuan tumbled the most since 1994 on Tuesday after China allowed market forces to have more influence. Where the currency goes from here will have an impact not only on growth prospects for Asia’s largest economy, but also the Federal Reserve’s interest rate policy and earnings for international companies from Apple Inc. to BMW AG.

The People’s Bank of China cut its reference rate by 1.1 percent at the fixing Thursday, spurring a drop of as much as

0.4 percent in U.S. equity-index futures, a 1.2 percent slide in copper, while Treasuries erased gains.

Trading Spike

“Market volumes were extremely quiet heading into the fixing,” said John Gorman, head of dollar interest-rate trading for Asia and the Pacific at Nomura Holdings Inc. in Tokyo. “As soon as the fixing took place, we saw an initial spike higher.”

The central bank’s reference rate rose Friday for the first time since Tuesday’s devaluation. The onshore spot rate gained

0.1 percent at 6.3918 per dollar at the close, paring its weekly decline to 2.9 percent.

The plunge in the yuan spurred the biggest two-day selloff in Asian currencies this week since 1997 and drove a gauge of commodities to a 13-year low. The dollar weakened as investors speculated the yuan’s depreciation will sap inflation globally. Traders have pushed down the odds of a September rate increase by the Fed to about 40 percent Wednesday, from 54 percent as recently as Aug. 7, according to data compiled by Bloomberg.

Shares of BMW, which received about 19 percent of its revenue from China in 2014, sank 7.8 percent in Germany in the two days through Wednesday, while Apple slid to its lowest since January.

Yuan Interest

For Mark Matthews, head of Asia research and a managing director of Bank Julius Baer & Co. in Singapore, the obsession with the yuan -- also known as the renminbi -- will wane as volatility ebbs.

“A month ago, everybody was focused on the Shanghai stock market, and a month before that, everybody was focused on Greece,” Matthews said. “Absolutely, the first thing everybody looks at when they come in in the morning now is the renminbi. But will it be like that a month from now? I doubt it.”

The yuan pared losses to 0.2 percent at the close on Thursday and the Shanghai Composite Index rose 1.8 percent after the central bank said there’s no basis for the currency’s depreciation to persist and it will step in to control large fluctuations.

Global market forces will continue to exert a greater influence over China’s currency. Under a new methodology used to determine the fixing, market makers who submit contributing prices have to consider the previous day’s close, foreign-exchange demand and supply, as well as changes in major currency rates.

For Varun Tradecom’s Bhutoria, the unpredictability of the fixing means a change of strategy.

“We are reducing risk on overnight positions on both equity and currencies,” he said. “We are coming to terms with the fact that the yuan is now becoming market determined.”