New | Yuan in more volatile trading as IMF review approaches
PBOC raises yuan mid-price the most in a decade, yet currency sees wild swings
The yuan fell steeply even after the central bank raised the daily reference the most in a decade, in an indication of the volatility the currency is poised to experience ahead of a crucial review by the International Monetary Fund this month that will determine if it makes it to an elite club of reserve currencies.
The People’s Bank of China fixed the yuan mid-price 341 basis points, or 0.54 per cent, stronger at 6.3154 against the US dollar yesterday, the biggest daily jump since July 2005. But onshore yuan, or CNY, shrugged off the central bank support and closed 0.32 per cent lower at 6.3379.
The currency had at one point fallen up to 0.45 per cent, the biggest intraday swing since the fixing mechanism was modified in August resulting in a shock devaluation.
Offshore yuan, or CNH, also fell by 0.41 per cent to 6.3459 as of 7pm.
Gerrard Katz, Asia FX head at Scotiabank, said yesterday’s depreciation was a result of increasing US dollar hedging demand from Chinese and foreign companies.
“There’s been quite a lot of US dollar demand for corporate hedging after the stronger yuan fixing against the dollar this morning, as expectations built up that the dollar will strengthen towards year-end. The market is becoming more volatile than we’ve seen recently. It will probably move up towards the 6.35-6.36 range in both the CNY and CNH,” he said.