Yuan Set for Weekly Advance as RQFII Expands; Forwards Retreat

China’s yuan was set for the biggest weekly gain in a month as the government expanded a quota for foreigners to invest in domestic securities.

Yuan positions at Chinese banks accumulated from sales of foreign exchange climbed 21.6 billion yuan ($3.47 billion) in October, the central bank said today. China will increase the Renminbi Qualified Foreign Institutional Investor Program by 200 billion yuan from 70 billion yuan, Guo Shuqing, chairman of the securities regulator, said Nov. 11. The Communist Party unveiled its new leaders yesterday, with Xi Jinping replacing Hu Jintao as party secretary.

“China is encouraging inflows of capital as a way to stimulate its economy, which will keep the yuan at a strong level,” said Daniel Chan, executive vice president at Glory Sky Global Markets Ltd. in Hong Kong. “The key uncertainty now is who will be in charge of economic policies in China’s new leadership and how aggressive they are in terms of reforms.”

The yuan rose 0.19 percent this week to 6.2334 per dollar as of 10:29 a.m. in Shanghai, according to the China Foreign Exchange Trade System. It was unchanged on the day, after the People’s Bank of China weakened the reference rate 0.06 percent to 6.2945.

The currency touched 6.2252 on Nov. 14, the strongest level since the government unified the official and market exchange rates at the end of 1993. The spot rate is allowed to fluctuate as much as 1 percent from the central bank’s fixing and touched the upper limit of its trading band for a ninth day yesterday.

In Hong Kong’s offshore market, the yuan fell 0.13 percent today to 6.2358 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards dropped 0.08 percent to 6.3410, a 1.7 percent discount to the onshore spot rate.

One-month implied volatility for the yuan, a measure of exchange-rate swings used to price options, climbed two basis points, or 0.02 percentage point, today to 1.74 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: James Regan at jregan19@bloomberg.net

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