Yuan approaches five-year low amid concern over economy, Brexit

[HONG KONG] The yuan drew closer to a five-year low as concern over China's economic slowdown and Britain's vote on European Union membership spurred selling in riskier assets.

The yuan traded within 0.2 per cent of its low set in January after slumping the most in a month on Monday. The currency fell less than 0.1 per cent to 6.5868 a dollar as of 10.55 am, and dropped to its lowest level since 2014 versus trading peers including the yen and the euro.

Volatility in China's financial markets is growing amid concern authorities won't add to stimulus even as the economic outlook deteriorates. The Shanghai Composite Index tumbled the most in three months on Monday before MSCI Inc's decision Wednesday on whether to add yuan-denominated shares in its global indexes.

New polls indicating that support for the UK leaving the EU exceeded that for remaining in the bloc are adding to global angst.

Any impact on the yuan from MSCI inclusion of mainland equities will be marginal, according to Frances Cheung, Hong Kong-based head of rates strategy for Asia ex-Japan at Societe Generale SA.

HSBC Holdings Plc estimates addition would spur inflows of as much as US$30 billion. That compares with capital outflows of some US$1 trillion last year.

In the money markets, the cost of one-year interest-rate swaps, the fixed payment to receive the seven-day repurchase rate, fell three basis points to a one-month low of 2.54 per cent, data compiled by Bloomberg show.

The PBOC injected a net 25 billion yuan (S$5.1 billion) via open-market operations in the first two days of this week, after withdrawing 175 billion yuan last week.

BLOOMBERG