China’s yuan continued to trade weaker ahead of its SDR inclusion, but the currency is showing signs of stability. On October 1, the International Monetary Fund will confer the stamp of recognition on China’s status as a key global financial system player by adding the Chinese yuan as its fifth Special Drawing Right (SDR) currency. Onshore yuan (CNY) in Shanghai traded at 6.6700 to the US dollar at 3.05pm on Friday, 0.07 per cent or 49 points weaker than on Thursday. However, CNY recorded the smallest quarterly drop over the previous year, down 0.36 per cent or 239 points in the latest three months, much narrower than the second quarter decline of 3.07 per cent or 1,979 points. Offshore yuan (CNH) in Hong Kong on Friday also traded lower at 6.6804, 0.16 per cent or 105 points lower. On a quarterly basis, CNH volatility is also easing. In the third quarter, CNH weakened 0.17 per cent or 114 points, recording the smallest quarterly drop over the past year and a half. CNH performance in the third quarter was greatly improved from its decline of 3.17 per cent or 2,050 points in the second quarter. The People’s Bank of China on Friday set the yuan reference point against the US dollar at 6.6778, 78 basis points or 0.117 per cent weaker than on Thursday. Traders are allowed to trade up to 2 per cent either side of the reference point for the day. “We expect SDR inclusion to provide a modest but not significant uplift to Chinese yuan asset demand, but two-way capital flows will unlikely be significantly mismatched as a result,” UBS economists including Donna Kwok and Wang Tao noted in a report. “Any impact on the onshore yuan will likely be negligible in the short to medium term and modest at best in the long term.” Stephen Innes, senior trader at Oanda, said the Chinese central bank continued to put an end to yuan speculation ahead of the SDR inclusion. “As the mainland markets are closed from October 1 through 7, the central bank took an unexpected tack of not easing onshore liquidity ahead of the holiday,” he added. “In addition to the steady yuan guidance theory, the other school of thought has the Chinese cental bank intentionally adjusting credit conditions as asset bubble risks become frothy again.” In other currency trading, the British pound continues to weaken, trading at US$1.2949 on Friday. It has weakened for the six months in a row. Japanese yuan strengthened, trading at 100.81.