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Yuan Touches One-Month High After Manufacturing Data Tops Survey

The yuan rose to a one-month high after manufacturing data exceeded economists’ forecasts, stoking speculation the currency may rebound after its worst quarter since a dollar peg ended in 2005.

The People’s Bank of China set its daily fixing 0.16 percent stronger at 6.3146 per dollar, the highest level in a week. The Purchasing Managers’ Index fell to 50.2 in June from 50.4 in May, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing reported yesterday. That was ahead of the 49.9 median estimate in a Bloomberg News survey of economists. The reading of 48.2 reported by HSBC Holdings Plc and Markit Economics today compared with 48.4 in May. A number below 50 indicates a contraction.

“People generally think domestic activity bottomed out in the second quarter,” said Andy Ji, a Singapore-based foreign- exchange strategist at Commonwealth Bank of Australia. “The PMI is a little piece of evidence of that. The yuan may resume its appreciation trend again.”

The yuan advanced 0.08 percent to 6.3488 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency touched 6.3461, its strongest level since May 29, after sliding 0.88 percent in the second quarter. The yuan is allowed to move as much as 1 percent either side of the daily fixing. One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 1.8 percent today.

Freefall Avoided

The world’s second-largest economy grew 8.1 percent in the first quarter from a year earlier, compared with 8.9 percent in the preceding three months. To spur expansion, China announced its first cut in interest rates in more than three years on June 7. The government has also lowered bank reserve requirements, speeded up approvals for investment projects and announced incentives to boost home-appliance sales.

China’s manufacturing figures should provide relief to investors concerned about a “freefall” in the economy, according to a research note from Barclays Plc dated yesterday. The data show the government’s efforts to stabilize expansion are starting to take effect and growth will bottom in the second quarter and start improving, Hong Kong-based analysts Jian Chang, Yiping Huang and Lingxiu Yang wrote.

In Hong Kong’s offshore market, the yuan climbed 0.13 percent to 6.3518 per dollar. Twelve-month non-deliverable forwards gained 0.01 percent to 6.4101 in Hong Kong, 1 percent weaker than the onshore spot rate, according to data compiled by Bloomberg.

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

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.

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