Yuan Touches 19-Year High, Nears Limit of Trading Band

The yuan touched its highest level since 1993, nearing the strong end of the central bank’s trading range, on speculation Chinese policy makers will take more steps to counter a slowdown.

Financial markets opened today after a weeklong holiday, during which the Chinese Communist Party said its 18th congress will start Nov. 8. The event, to feature a once-a-decade handover of power to a new generation of leaders, may result in increased stimulus to counter an economic slowdown, according to research notes last week from Mizuho Securities Asia Ltd. and Australian & New Zealand Banking Group Ltd. The U.S. jobless rate dropped to 7.8 percent in September, the lowest level since January 2009, data released on Oct. 5 showed.

“The Congress date signals that political issues have been set aside and the leaders will focus on reviving the economy,” said Daniel Chan, executive vice president at Glory Sky Global Markets Ltd. in Hong Kong. “The U.S. data are encouraging for Chinese exports, which also supports the yuan.”

The yuan climbed to 6.2812 per dollar, the strongest level since China unified official and market exchange rates at the end of 1993, before ending the trading day 0.04 percent weaker at 6.2872, according to the China Foreign Exchange Trade System. Today’s high exceeded the central bank’s reference rate by a record 0.98 percent, near to the maximum 1 percent divergence that is permitted.

The People’s Bank of China lowered its daily fixing by 0.03 percent today to 6.3426 per dollar. That was 0.9 percent weaker than the closing spot price on Sept. 28.

Forwards Steady

Twelve-month non-deliverable forwards were little changed at 6.3913 per dollar by 11:02 a.m. in New York. One-month implied volatility, a measure of exchange-rate swings used to price options, was steady at 1.2 percent.

China’s yuan positions may have fallen in September as the nation faces “more severe” imported inflationary pressure after Europe, U.S. and Japan expanded quantitative easing, the People’s Bank of China’s publication Financial News said in a front-page commentary today.

China’s service industries expanded at a faster pace in September. The Purchasing Managers’ Index rose to 54.3 from 52 in August, HSBC Holdings Plc and Markit Economics said today. A reading above 50 indicates expansion.

“This suggests that Chinese growth will rebound only modestly towards year-end,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. “Nevertheless, today’s data is a positive as it puts a floor under the overall sentiment measure.”

In Hong Kong’s offshore market, the yuan gained 0.05 percent to 6.2945 per dollar.

Manufacturing in China shrank in August and September, contracting in consecutive months for the first time since 2009, according to a government-backed Purchasing Managers’ Index published Oct. 1. The gauge was 49.8 in September, compared with 49.2 in the previous month.

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

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

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