Yuan Forwards Snap Two-Day Decline After Wen’s Economy Pledge

Yuan forwards snapped a two-day loss after Premier Wen Jiabao said China’s economy will avoid a sharp slowdown and as data added to evidence a U.S. recovery is gaining traction.

Wen said at a press conference in Stockholm yesterday that the world’s second-biggest economy will sustain “steady and robust” growth and will continue to commit to “reform and opening up.” New homes in the U.S. were sold at a 328,000 annual rate in March, compared with the 319,000 pace forecast in a Bloomberg News survey. The PBOC strengthened the reference rate 0.13 percent to 6.2923 per dollar, near to this year’s average fixing of 6.3056.

Twelve-month non-deliverable forwards gained 0.05 percent to 6.3455 per dollar as of 10:19 a.m. in Hong Kong, a 0.7 percent discount to the onshore spot rate, according to data compiled by Bloomberg. One-month implied volatility for the currency, a measure of exchange-rate swings used to price options, stayed at a six-week low of 2.1 percent.

“It’s been external sentiment that’s mainly affecting the yuan recently,” said Chin Loo Thio, a senior analyst at BNP Paribas in Singapore. “Yuan volatility is going to remain low as the U.S. dollar has been quite stagnant.”

The yuan rose 0.06 percent to 6.3037 in Shanghai, according to the China Foreign Exchange Trade System. The currency is allowed to trade 1 percent on either side of the daily fixing and Thio predicts it will appreciate to 6.21 by the end of the year. In Hong Kong’s offshore market, the yuan rose 0.04 percent to 6.3055.

China’s economic performance still faces downward pressure and the domestic and external situations are still “grim,” the Ministry of Industry and Information Technology said in a statement today.

To contact the reporter on this story: Andrea Wong in Taipei at awong268@bloomberg.net

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

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