Yuan Has Second Weekly Advance as Inflation Bolsters Case for Appreciation

China’s yuan was headed for a second weekly advance, leading gains in Asia, as a pickup in inflation bolstered the case for policy makers to heed U.S. calls for faster appreciation.

Government data this week showed consumer prices jumped 4.4 percent from a year earlier in October and the trade surplus was $27.2 billion, the highest levels since at least January 2009. The People’s Bank of China set the reference rate for yuan trading at 6.6239 per dollar today, the strongest since a peg ended in July 2005, as leaders from the Group of 20 nations held talks in Seoul to tackle currency swings and trade imbalances.

“Data is really telling us that the yuan can appreciate faster,” said Robert Minikin, a senior foreign-exchange strategist at Standard Chartered Plc in Hong Kong. “It has been an opportune time for China to beef up yuan appreciation with the G-20 happening, but the question is what will happen next week.”

The Chinese currency gained 0.4 percent this week to 6.6296 per dollar as of 10:04 a.m. in Shanghai, according to the China Foreign Exchange Trade System. It retreated 0.1 percent today, after yesterday touching 6.6173, the strongest level since official and market exchange rates were unified in 1993.

Twelve-month non-deliverable forwards dropped 0.8 percent to 6.4900 today in Hong Kong, poised for a 0.5 percent weekly loss. The contracts reflect bets the currency will appreciate 2.1 percent in a year, the smallest gain projected since September, according to data compiled by Bloomberg. Minikin said he expects a strengthening of about 4 percent in the coming year.

The yuan has risen 25 percent since the start of 1999, the fourth-best performance of 25 emerging-market currencies tracked by Bloomberg.

President Barack Obama met yesterday with Chinese President Hu Jintao at the G-20 talks, seeking to discuss global imbalances with a country whose record $28 billion trade surplus with the U.S. in August fueled criticism that the yuan is undervalued. South Korean President Lee Myung Bak said today “there has been much progress” made at the two-day summit.

--Sonja Cheung. Editors: James Regan, Ven Ram

To contact Bloomberg News staff for this story: Sonja Cheung in Hong Kong at +852-2977-6934 or scheung58@bloomberg.net;

To contact the editors responsible for this story: Sandy Hendry at shendry@bloomberg.net;

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