Yuan Forwards Fall as Slowing GDP Growth Damps Appreciation Bets

China’s yuan forwards declined, halting a three-day gain, before a government report that may show economic growth slowed for a seventh straight quarter.

Economic fundamentals and capital flows don’t support yuan appreciation, the China Securities Journal reported in a commentary today. Gross domestic product increased 7.4 percent in the three months through September from a year earlier, easing from 7.6 percent in the previous period, according to the median estimate in a Bloomberg News survey before data due Oct. 18. Opponents of President Barack Obama contend that China keeps its currency undervalued to boost exports, putting counterparts in the U.S. at a disadvantage.

“Some investors could be taking profit from the recent rapid gains in the yuan as they are cautious on the economy,” said Patrick Cheng, a foreign-exchange analyst at Haitong International Securities Co. in Hong Kong. “The U.S. elections will continue to provide support to the yuan in coming weeks.”

Twelve-month non-deliverable forwards declined 0.06 percent to 6.3595 per dollar as of 4:30 p.m. in Hong Kong, a 1.5 percent discount to the onshore rate of 6.2640, according to data compiled by Bloomberg. The currency touched 6.2580 yesterday in the spot market, the strongest level since the government unified the official and market exchange rates at the end of 1993, China Foreign Exchange Trade System prices show.

Obama is competing with his Republican challenger Mitt Romney in a televised commercial war on China trade. They are set to hold the second presidential elections debate later today. The yuan has advanced 2.1 percent since reaching this year’s low of 6.3967 on July 25.

The People’s Bank of China raised the reference rate today by 0.01 percent to 6.3106 per dollar, the strongest since June 21. The yuan can trade as much as 1 percent on either side of the fixing. In Hong Kong’s offshore market, the currency slipped 0.05 percent to 6.2635.

One-month implied volatility, a measure of exchange-rate swings used to price options dropped 10 basis points to 1.7 percent.

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

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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