China plans to extend yuan’s trading hours

Bloomberg

China plans to extend the yuan’s trading hours as it seeks to increase global investor participation in onshore currency trading as part of its internationalisation push.
Regulators led by the People’s Bank of China have told some banks to prepare for an extension of onshore yuan trading hours, according to people familiar with the matter, who asked not to be identified discussing private information. The trading will close at 3 am the next day, instead of the 11:30 pm local time. It’s not known when the change would be effective.
The PBOC had pledged to extend currency trading hours and vowed to further open up the financial market in May after the International Monetary Fund (IMF) lifted yuan’s weighting in the Special Drawing Rights currency basket. The further extension of yuan trading into New York hours could boost China’s foreign exchange trading volume, which dwindled in May due to Covid lockdowns in
Beijing and Shanghai.
“The extension of yuan trading hours would help meet increasing demand for yuan transactions,” said Ju Wang, head of greater China foreign exchange and rates strategy at BNP Paribas SA. “International investors have significantly increased their exposure to Chinese assets over recent years,” Wang said.
The onshore yuan has depreciated nearly 5% versus the dollar this year as the economy suffers due to Covid-led curbs and the PBOC’s accommodative stance at a time when the Federal Reserve is hiking rates drives outflows.
The trading extension could result in 18 hours of yuan trading in a day, compared with 14 hours currently. China last tweaked yuan trading hours in 2016 when it
extended trading by seven hours.
A limited group of offshore investors including 55 central banks, 59 offshore participating banks and 22 yuan clearing banks have been allowed to access China’s onshore currency trading as of May. Their trading volume last month was $101.5 billion, accounting for only 2.66% of the onshore currency market.
“The extended hours would also help Chinese investors who trade global assets to hedge their currency risk too,” BNP’s Wang said.
An increase in the onshore yuan trading volume outside of regular Asian hours may provide more guidance on offshore yuan trades and narrow the onshore-offshore spread, Hong Kong & Shanghai Banking Corp. said in a note earlier this month. The onshore yuan was little changed at 6.6870 per dollar as of 2:58 pm local time, while the offshore yuan was steady at 6.6816.