Yuan Advances Beyond 6.6 Per Dollar for First Time Since 1993 on Inflation
Yuan Advances Beyond 6.6 Per Dollar
Nelson Ching/Bloomberg
The renminbi climbed 0.5 percent in the past five days, headed for its fifth weekly gain, and reached the strongest level since China unified official and market exchange rates at the end of 1993.
The renminbi climbed 0.5 percent in the past five days, headed for its fifth weekly gain, and reached the strongest level since China unified official and market exchange rates at the end of 1993. Photographer: Nelson Ching/Bloomberg
Dec. 30 (Bloomberg) -- Michael Woolfolk, senior currency strategist at Bank of New York Mellon Corp., discusses the outlook for emerging market economies and stock markets in 2011. Woolfolk, speaking with Pimm Fox on Bloomberg Television’s “Surveillance Midday,” also discusses Federal Reserve policy, the U.S. dollar and the Chinese yuan. (Source: Bloomberg)
Dec. 29 (Bloomberg) -- Vassili Serebriakov, a currency strategist at Wells Fargo & Co., and David Mann, head of currency research at Standard Chartered Bank, talk about the outlook for currency markets in 2011. Serebriakov and Mann also discuss the U.S. dollar, euro, China's yuan and their investment strategies. They talk with Carol Massar on Bloomberg Television's "Street Smart." (Source: Bloomberg)
The yuan strengthened beyond 6.6 per dollar for the first time in 17 years, bringing gains for 2010 to 3.6 percent, on speculation China will allow the currency to advance in an effort to tame inflation.
The benchmark money-market rate reached a three-year high after the central bank drained cash from the banking system to cool economic growth. The renminbi climbed 0.57 percent in the past five days, a fifth weekly gain, and reached the strongest level since China unified official and market exchange rates at the end of 1993. The yuan will continue to appreciate, advancing 6 percent next year, said David Cohen, an economist at Action Economics Ltd. in Singapore.
Policy makers “recognize the usefulness of a stronger currency in curbing inflation,” said Cohen. “The yuan, like other Asian currencies, has very strong fundamentals and the country has a very large current-account surplus.”
The yuan climbed 0.17 percent to 6.5897 per dollar as of 4:30 p.m. in Shanghai, earlier touching a high of 6.5896, according to the China Foreign Exchange Trade System. Twelve- month non-deliverable forwards were little changed at 6.4608, reflecting bets the currency will gain 2 percent in a year.
The People’s Bank of China set the reference rate higher for the ninth day, at 6.6227 per dollar today compared with 6.6229 yesterday. The yuan is allowed to trade by up to 0.5 percent either side of the so-called central parity rate. The U.S. Dollar Index, a gauge of the greenback’s strength, retreated for the seventh day.
Hu’s Visit
The main appreciation of the yuan will likely happen in the first quarter, with Hu Jintao’s state visit to Washington next month, said Craig Chan, an Asia foreign-exchange strategist at Nomura Singapore Ltd. on Dec. 16. The House of Representatives passed legislation in September letting U.S. companies petition for duties on Chinese imports to compensate for the effect of a weak yuan.
The renminbi will be the top performer among the so-called BRIC nations’ currencies in the coming year, according to analyst surveys by Bloomberg. China’s currency will strengthen 4.9 percent to 6.28 by the end of 2011, according to the median estimate of 19 analysts in a Bloomberg survey. That’s over double the 2 percent gain projected by 12-month non-deliverable forwards.
Analysts predict Brazil’s real will weaken 2.4 percent, Russia’s ruble will appreciate 0.6 percent and India’s rupee will rise 3.7 percent.
Offshore yuan forwards rose 0.34 percent to 6.5800 per dollar in Hong Kong. Twelve-month deliverable forwards in the city were at 6.5760 today, compared with 6.5725 yesterday.
Zhou Pledge
China’s consumer prices climbed 5.1 percent from a year earlier in November, the biggest gain in 28 months, the statistics bureau said on Dec. 11. The yuan is a denomination of China’s currency, the renminbi.
Central bank Governor Zhou Xiaochuan pledged in his New Year message to tackle inflation, saying the nation had consolidated its recovery in 2010. Zhou reaffirmed a shift to a “prudent” monetary policy in 2011 from the “moderately loose” stance that countered the financial crisis.
The seven-day repurchase rate, which measures lending costs between banks, advanced seven basis points to 6.34 percent, the highest level since October 2007, according to a daily fixing published at 11 a.m. by the National Interbank Funding Center.
The yield on the 3.67 percent government bond due October 2020 was unchanged at 3.88 percent, according to data compiled by Bloomberg. One-year interest-rate swaps, or the fixed cost needed to receive the floating seven-day repurchase rate, slipped four basis points to 3.17 percent.
Lenders are holding onto funds after policy makers raised banks’ reserve requirements for the third time in five weeks to curb inflation. The central bank on Dec. 25 also lifted the benchmark lending and deposit rates by 25 basis points, the second increase this quarter.
Policy makers are likely to boost lending and deposit rates by about 2 percentage points more next year, said Tao Dong, chief economist for Asia excluding Japan at Credit Suisse Group AG. in Hong Kong Dec. 22.
--Patricia Lui. Editors: Sandy Hendry, James Regan
To contact the reporter on this story: Patricia Lui at plui4@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
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