Yuan Forwards Drop a Second Day as Manufacturing Growth Cools

Yuan non-deliverable forwards dropped for a second day on speculation China will slow gains in its currency after manufacturing growth cooled.

The Purchasing Managers’ Index fell to 50.4 in October from 51.2 in September, the China Federation of Logistics and Purchasing said in a statement today. That compared with the median estimate of 51.8 in a Bloomberg News survey. A reading above 50 indicates expansion. Premier Wen Jiabao said on Oct. 29 that China will “fine tune” its economic policies at an appropriate time, fuelling speculation for monetary easing.

“From the beginning of next year, the yuan’s pace of appreciation will be flatter,” said Leong Sook Mei, regional head of global currency research at Bank of Tokyo Mitsubishi UFJ Ltd. in Singapore. “The PMI shows inflation will come off.”

Twelve-month forwards slipped 0.15 percent to 6.3765 per dollar as of 4:44 p.m. in Hong Kong, according to data compiled by Bloomberg. In the spot market, the yuan was little changed at 6.3543 in Shanghai, compared with 6.3549 yesterday, according to the China Foreign Exchange Trade System. The currency has advanced 3.9 percent this year.

The People’s Bank of China set a weaker daily reference rate for the first time in three days, fixing it 0.09 percent lower at 6.3293.

A government report on Nov. 9 will show China’s inflation rate eased to 5.5 percent in October from a year earlier, according to the median estimate of economists in a Bloomberg News survey. Consumer prices have increased at an annual pace of more than 6 percent in each of the previous four months.

In Hong Kong’s offshore market, the yuan declined 0.18 percent to 6.4015 per dollar.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net.

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

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