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Asian-Pacific Stocks Rise as Yuan Slides on PBoC new Regulations

Stocks in Asia-Pacific mostly advanced in Monday trade, as investors monitor the Chinese yuan’s movements.

Mainland Chinese stocks were among the biggest gainers regionally, with the Shanghai composite up 2.27% while the Shenzhen component jumped 2.386%. Hong Kong’s Hang Seng index also surged 2.03% as shares of Chinese banks listed in the city soared: China Construction Bank added 5.58%, ICBC was up 6.23% while Bank of China gained 4.18%.

South Korea’s Kospi rose 0.46% as shares returned to trade following a Friday holiday.

Meanwhile, shares in Australia were marginally higher, with the S&P/ASX 200 up 0.1%. In Japan, the Nikkei 225 bucked the trend and slipped 0.36% while the Topix index shed 0.45%.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.94%.

Investors will monitor the yuan’s movements on Monday, after the People’s Bank of China announced a rule change that made it cheaper to short the yuan.

Traders short the yuan when they expect the currency to weaken in future. One way to do so is to borrow in yuan in hopes of buying it back at a lower price later and pocketing the difference.

The central bank announced Saturday that financial institutions now no longer need to set aside cash when conducting some foreign exchange forwards trading, with effect from Monday. Previously, financial institutions had to set aside 20% of the previous month’s yuan forwards settlement amount as foreign exchange risk reserves, according to Reuters.

The onshore yuan weakened to 6.7192 per dollar, as compared to levels below 6.7 against the greenback seen last week. Meanwhile, its offshore counterpart last traded at 6.7177 per dollar.

National Australia Bank’s Tapas Strickland said the moves in the yuan were likely driven by the rule change “which makes it less expensive to short the (Chinese yuan) and signals less (concern) about currency weakness.”

Oil prices were lower in the afternoon of Asian trading hours, with international benchmark Brent crude futures down 0.93% to $42.45 per barrel. U.S. crude futures also shed 0.96% to $40.21 per barrel.

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 93.093 following a recent slide from levels above 93.3.

The Japanese yen traded at 105.46 per dollar after strengthening from levels above 105.9 against the greenback last week. The Australian dollar changed hands at $0.7227 after rising from about $0.71 last week.