MSCI MSCI Inc

Global index provider MSCI Inc.'s surprise decision not to include China's A shares in its widely tracked benchmark indexes sent the yuan tumbling Wednesday, with the currency briefly reaching its weakest level against the U.S. dollar since January 2011 before recovering slightly.

The onshore-traded yuan weakened to 6.6047 to the U.S. dollar from its official Tuesday closing of 6.5905, a 0.2% depreciation. The yuan then rebounded to its current level of 6.5967, as stocks in Shanghai clawed back from a 1.0% opening loss to gain 0.5%. Meanwhile, the offshore yuan, traded in Hong Kong, touched a four-month low of 6.6152 to the U.S. dollar before rebounding as well.

Earlier, China's central bank set Wednesday's yuan benchmark rate at 6.6001 against the dollar, its weakest fixing since March 2011, 0.3% weaker than Tuesday's rate of 6.5791.

MSCI said its decision, announced Tuesday, reflected international investors' concern about the Chinese stock market's openness and the effectiveness of the newly imposed regulatory changes.

The yuan's breach of the psychologically significant 6.6000 barrier may have triggered orders from clients of investment banks to sell their yuan positions to reduce losses, which would exacerbate the currency's depreciation. Chinese authorities can be expected to intervene to cushion the currency if it weakens significantly, as they did in January.

The yuan's weakening also exerts a toll on other Asian currencies, particularly those that are managed by a trade-weighted basket, such as the Singapore dollar. A falling yuan could set off a chain reaction of currency depreciation across the region.

The Japanese yen slipped, surrendering some of its recent gains to reach 106.30 due to haven U.S. dollar buying. Fears of a "Brexit" crowded out the influence of Thursday's Bank of Japan monetary policy decision. The BOJ is unlikely to announce further policy easing, which could result in a stronger yen as the market pares bets on yen intervention measures. The Australia dollar declined initially but then bounced back as stocks in Shanghai recouped initial losses. The euro remains undermined by bearish implications of the "Brexit" vote.

Wednesday's weaker yuan fixing wasn't unexpected as the ICE U.S. dollar index rallied overnight due to haven-buying ahead of the June 23 referendum in the U.K. over whether to leave the European Union.

Write to Ewen Chew at ewen.chew@wsj.com

(END) Dow Jones Newswires

June 15, 2016 00:05 ET (04:05 GMT)

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