This week witnessed several important developments in China’s efforts to eventually allow the Chinese Yuan to float freely. First, China announced it may soon allow interest rates to fluctuate in accordance with market forces, rather than rigidly controlling rates. In response, one of China’s largest banks announced the completion of China’s first ever interest rate swap agreement, which serves as a proxy for expectations surrounding future interest rates. These developments are important because higher interest rates would surely put strong upward pressure on the Yuan. Meanwhile, the Yuan has continued to appreciate in forex markets (albeit slowly), and is on pace to breakthrough 8.05 RMB/USD next week.

Read More: China launches RMB interest rate swap transaction