The Chinese central bank is likely to keep the yuan stable against a basket of currencies in order to avert the repetition of market panic witnessed in January, noted Scotiabank in a research report. The Asian emerging markets’ currencies are expected to remain susceptible to the renewed concerns of the US Fed hiking rates and the possible external uncertainty of Brexit referendum in June. A fairly stable CNY might mitigate the threats of destabilizing regional markets in the midst of external disturbance, added Scotiabank.

Since the start of May, offshore CNH and onshore CNY have depreciated against the USD, along with a largely strengthening dollar. But the standard deviation and mean of the daily log return of yuan are below other regional currencies. It might aid in anchoring market projections. USD/CNH 25 delta risk reversal continues to be restricted, hinting that market is not concerned at the moment regarding sharp declines in the yuan.

CFETS RMB Index, in the mean time, has risen as the yuan performs better than the regional peers to calm down market concerns when the USD bolsters throughout the board. However, the yuan continues to face depreciating pressure. This patter is likely to continue, noted Scotiabank. Moreover, the PBoC has kept the market-based USD/CNY fixing mechanism unchanged in the past weeks.

Chinese regulators are expected to continue opening domestic financial markets and boost the yuan’s global usage until the external environment is positive. Six offshore yuan business participant banks from 20 May have been able to trade derivatives and spot in onshore FX market.