Yuan Posts Weekly Decline Amid Economy Concern, MSCI Rejection

  • Brexit would pressure currency further, StanChart says
  • Exchange rate volatility surged to highest since March

The yuan posted its biggest weekly decline in a month, weighed down by weak economic data and MSCI Inc.’s decision to leave Chinese stocks out of its benchmark indexes.

Volatility in China’s currency market rose to an almost three-month high this week as the spot rate fell beyond a five-year low last seen during January’s turmoil. Official data Monday showed China’s fixed-asset investment in the first five months of this year trailed all 38 economists’ forecasts, while Britain’s possible exit from the European Union prompted haven demand.

The yuan fell 0.48 percent this week, the most since May 13, to 6.5916 a dollar as of 4:45 p.m. in Shanghai, China Foreign Exchange Trade System prices show. It was little changed on Friday, paring the past month’s decline to 1 percent. The offshore currency traded in Hong Kong climbed 0.08 percent from June 10.

“If we do see a Brexit scenario, that would potentially be more dollar positive so potentially some move higher for dollar-yuan,” said Eddie Cheung, a currency strategist at Standard Chartered Plc in Hong Kong. “But in an event we avoid a Brexit, then potentially the dollar would be flatter to lower and more risk-on.”

Anxiety over the unchartered territory that a vote for Brexit could usher in, and the aptitude of central banks to enforce stability amid such an event, have helped erase about $2 trillion of global equity value over the past week. Campaigning for the June 23 referendum was halted through Friday after a U.K. lawmaker was killed.

MSCI, whose emerging-market index is tracked by investors with $1.5 trillion in assets, cited the need for additional improvements in the accessibility of China’s share market and said that it would reconsider inclusion in 2017. The People’s Bank of China may attempt to support the yuan around the 6.60 level as a breach could shift the currency’s technical outlook toward a more bearish side, Ken Cheung, Asia foreign-exchange strategist at Mizuho Bank Ltd., wrote in a note.

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