Yuan Forwards Predict Most Gains in Five Months; Currency at 17-Year High

Yuan forwards traded at the biggest premium to the spot rate in more than five months, reflecting speculation the central bank will allow faster currency gains to help tame inflation.

More rapid appreciation may be a tool for curbing prices, Wang Yong, a professor at the People’s Bank of China’s training center in the city of Zhengzhou, wrote in a commentary published in today’s Securities Times newspaper. The central bank set the yuan’s reference rate 0.11 percent stronger at 6.5156 per dollar, the highest level since a dollar peg was scrapped in July 2005.

“The frequent record highs in the reference rate are pushing up appreciation bets in the offshore market,” said Liu Dongliang, a Shenzhen-based senior analyst at China Merchants Bank Co., the country’s sixth-largest lender by market value. “There won’t be any one-off move in the foreseeable future, especially when the trade surplus is narrowing.”

Twelve-month non-deliverable forwards rose 0.38 percent to 6.3235 per dollar as of 5:27 p.m. in Hong Kong, 2.9 percent stronger than the onshore exchange rate, according to data compiled by Bloomberg. That’s the largest gain projected since Nov. 11. The currency appreciated 0.21 percent today in Shanghai to 17-year high of 6.5067, the biggest gain since Feb. 18, according to the China Foreign Exchange Trade System.

Relatively large pressure for yuan gains has affected companies’ export orders, the Ministry of Commerce said on its website today. The country’s import growth may be faster than export growth this year, the ministry said. The world’s second- biggest economy had a $1.02 billion trade deficit in the first three months of this year, the first quarterly shortfall in seven years.

Consumer prices rose 5.4 percent in March from a year earlier, exceeding the government’s 2011 target of 4 percent, according to data released last week.

--Judy Chen. Editors: Sandy Hendry, James Regan

To contact the reporter on this story: Judy Chen in Shanghai at xchen45@bloomberg.net.

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