Yuan Forwards Decline as Reference Rate Weakened After U.S. Data

Yuan forwards fell after the central bank weakened the reference rate for the first time in a week as U.S. consumer confidence data reduced the likelihood of the Federal Reserve rolling out more monetary stimulus.

The People’s Bank of China lowered the yuan’s daily fixing by 0.11 percent to 6.2912 per dollar, after setting it at record highs for the last three days. The Dollar Index climbed by as much as 0.2 percent yesterday as a gauge of U.S. consumer confidence was 70.2 this month, near February’s 71.6, which was the highest in a year. The yuan weakened 0.2 percent since the end of last year, poised for its first quarterly drop since 2009.

“Market sentiment worsened today as there isn’t much hope for more quantitative easing in the short term,” said Tommy Ong, the Hong Kong-based senior vice president of treasury and markets at DBS Bank (Hong Kong) Ltd. “Demand for the yuan has been weaker this year because investors are expecting less appreciation on concerns over China’s growth.”

Twelve-month non-deliverable forwards dropped 0.15 percent to 6.3415 per dollar as of 5 p.m. in Hong Kong, a 0.6 percent discount to the onshore spot rate, according to data compiled by Bloomberg.

The yuan gained 0.02 percent to close at 6.3060 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency is allowed to move as much as 0.5 percent on either side of the fixing. In Hong Kong’s offshore market, the yuan fell 0.03 percent to 6.3139.

One-month implied volatility for the yuan, a measure of exchange-rate swings used to price options, was unchanged at 2.4 percent.

Australian Treasurer Wayne Swan said he wants to bolster currency ties with China, his nation’s largest trading partner, according to the text of a speech today in Melbourne. The Reserve Bank of Australia and People’s Bank of China signed a A$30 billion ($31.3 billion) currency-swap agreement last week to ensure the availability of capital between the trading partners.

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

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

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