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Yuan Rises Most in Two Weeks as Dollar Weakens on Signs Recovery on Track
The yuan rose the most in more than two weeks after the dollar fell against the euro and Asian currencies on signs the global economic recovery is on track.
The People’s Bank of China set the reference rate 0.04 percent stronger at 6.7973 per dollar, the biggest two-day increase since July 2. Europe’s central bank yesterday lifted its forecast for the euro-area economy to growth of as much as 1.8 percent this year from a previous forecast of as much as 1.3 percent. The Dollar Index, used by IntercontinentalExchange Inc. to track the greenback against the currencies of six major trading partners, is set for its biggest weekly decline in four weeks as manufacturing accelerated in the U.S. and China.
“The yuan is tracking the dollar as the euro has gained against the dollar, while most dollar-Asians are testing pre- crisis levels,” said Philip Wee, a Singapore-based senior currency economist at DBS Group Holdings Ltd.
The yuan rose 0.09 percent to 6.8024 per dollar as of 3:19 p.m. in Shanghai, compared with 6.8084 yesterday, according to the China Foreign Exchange Trade System. It is allowed to trade up to 0.5 percent either side of the daily fixing rate.
The currency is still set for a second weekly decline, dropping 0.06 percent from 6.7982 at the end of last week. Nine of Asia’s 10 most-active currencies outside of Japan rose against the dollar this week.
“The yuan is probably still going to be in a range as we have yet to see fresh highs after the June move,” Wee said. “I think most Asian central banks are taking a pause at the moment to assess their domestic growth situation.”
The People’s Bank of China ended a two-year old peg of the currency to the dollar in June. The yuan reached a record high of 6.7644 on Aug. 9.
Yuan Forwards, Bonds
The twelve-month non-deliverable forward is headed for its biggest weekly decline in six weeks, dropping 0.3 percent to 6.7109 a dollar, reflecting bets the currency will advance 1.4 percent, according to data compiled by Bloomberg.
China’s Purchasing Managers’ Index rose to 51.7 in August, a government-backed report showed this week. That compared with 51.2 in the prior month and the 51.5 median forecast in a Bloomberg News survey of 17 economists.
Government bonds were little changed this week. The central bank has kept the yields on its one-year and three-month bills unchanged in open-market operations. It has added a net 70 billion yuan ($10.3 billion) of funds into the money market this week, the biggest injection in eight weeks.
“The government bond market has hardly moved this week due to a lack of either good or bad news,” said Hu Hangyu, a Beijing-based bond analyst at Citic Securities Co., China’s biggest listed brokerage. “We may see clearer signs of slower economic growth in the fourth quarter, when the bonds may have another round of gains.”
The yield on the 3.28 percent note due in August 2020 was little changed during the week at 3.24 percent, and the price of the security was 100.38 per 100 yuan face amount, according to the National Interbank Funding Center.
--Patricia Lui, Belinda Cao. Editors: Andrew Janes, Sandy Hendry
To contact Bloomberg News staff for this story: Patricia Lui in Singapore at +65-6499-2658 or plui4@bloomberg.net Belinda Cao in Beijing at +86-10-6649-7570 or lcao4@bloomberg.net
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