New | Yuan seen stable in second half as Beijing seeks to achieve globalisation
Three critical events the market expects to see happen over the next six to twelve months around yuan globalisation: MSCI inclusion, the Shenzhen-Shanghai stock connect, and the IMF SDR review
The yuan has been one of the best performing Asian currencies in the first half against the US dollar and may continue to maintain its current strength for the rest of the year as Beijing tries to internationalise the currency.
The government is keen to keep the yuan stable even if that means allowing it to strengthen against almost all other currencies as they weaken against a strong dollar, denting Chinese export competitiveness.
A stable currency boosts incentives for foreign trading and investment entities to choose yuan in their transactions, a key indicator in the technical assessment by the International Monetary Fund in its review of the Special Drawing Rights (SDR) basket - an elite club of currencies Beijing wants the yuan to join this year.
In the first half, onshore yuan weakened less than 0.1 per cent while the US dollar index gained more than 4 per cent. Offshore yuan strengthened 108 pips against the greenback in the first six months.
The gap between rates averaged at 48 basis points in the first half, almost unchanged from the 47 in the second half of last year.
"At this point, because the SDR review is still hanging in the air, there are some sacrifices as the currency is stronger than the regulators had desired," said Christy Tan, head of markets strategy, Asia, at National Australia Bank.
The IMF has sent a team to Beijing to conduct a technical assessment of the yuan's eligibility to join the SDR basket. The review will be concluded this year.