Yuan seen as a safe haven in forex volatility

The Chinese Yuan has emerged as a safe haven amid volatility in forex markets, brokers and analysts said.

Major currencies including the Australian dollar, euro and Swiss franc have experienced wild fluctuations this year while the more stable yuan last month halted its four-month decline. The Chinese currency has erased this year’s loss of as much as 1.2 per cent, trading at 6.2053 to the US dollar on Thursday fter falling to as weak as 6.2763 on March 3.

Chinese politicians are expected to ensure a stable exchange rate before the International Monetary Fund starts discussing the possibility of adding the yuan to the ranks of the world’s reserve currencies next month, according to Barclays and DBS Group Holdings.

An estimated $33 billion was spent in the first quarter to halt a slide that had sent the yuan to a two-year low in March, Bloomberg News reported.

“Unlike the other currencies, the margin of the Chinese Yuan is very small in terms of going up and down,” Nour Eldeen Al Hammoury, the senior vice president, chief market strategist at ADS Securities said yesterday.

“As an investor, you can put your money in the Chinese yuan and you don’t have to worry.”

Barclays analysts said this month that ahead of the IMF review, “China will refrain from devaluing the yuan”.

The Chinese currency, which became the world’s fifth most-used in December, will remain stable this year, ending at 6.23 per dollar, according to a median forecast of 58 analysts surveyed by Bloomberg.

Volatility has hit other currencies this year, unsettling foreign exchange traders in London and New York.

Switzerland’s removal of a cap on its currency in January caused the franc to soar as its central bank tried to head off anticipated quantitative easing measures in the euro zone. The franc climbed to a two-month high against the euro on April 2, with the common currency hobbled by Greece’s struggle to secure bailout funds and avert a default. The euro has plunged about 11 per cent against the dollar this year and is the worst performer among a basket of peers. Australia’s dollar has slumped more than 20 per cent from last year’s high of 95.05 US cents in July to a low of 75.33 US cents on April 2.

Meanwhile, Mr Al Hammoury said that he does not anticipate the price of oil falling further to as low as US$20 per barrel. He said that a final agreement with Iran on lifting sanctions by the end of June should “add stability” to regional markets or “decrease the fear” of investors that there could be further conflict in the region.

Crude prices have slumped by almost 50 per cent from peaks of about $115 per barrel last summer.

Any extra supply coming from Iran could be met by a change in policy from Opec, which has so far kept output levels steady, said Mr Al Hammoury.

“The agreement with Iran should be finished by June 30, so if Opec cuts the oil production by one million barrels and then they lift the sanctions on Iran, the market may be supplied by another one million,” he said. “At that time, we may see another emergency meeting by Opec to cut another one million. It’s very critical.”

West Texas Intermediate rose 86 cents to $51.28 a barrel in New York yesterday and Brent crude added $1.22 to $56.77.

Abu Dhabi-based ADS Securities said it was considering opening offices in South Africa and Egypt in the next year to meet growing demand for foreign exchange and brokerage services.

“Africa is a virgin market and the potential is very high. South Africa is a possibility to start with,” said Mr Al Hammoury.

“In the region, Egypt is a very competitive market. There is a huge potential there … maybe the next thing is to go into Egypt and maybe open an office there.”

ADS opened a London office this year. It also has presence in Asia in Singapore and Hong Kong. The company is planning to start a research service in English, Arabic and Chinese.



Shereen El Gazzar

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