Yuan Rebounds on Stronger Fixing as China Eases Curbs of Inflows

China’s yuan rebounded from its biggest weekly loss since July after the government relaxed foreign investment rules and the central bank strengthened the daily fixing by the most in almost three weeks.

Authorities scrapped a ceiling on investments by overseas sovereign wealth funds and central banks in the nation’s capital markets on Dec. 14. The People’s Bank of China raised the reference rate by 0.05 percent to 6.2892 per dollar, the biggest increase since Nov. 27. The yuan is allowed to trade as much as 1 percent on either side of the daily fixing.

“China is looking for overseas funds to boost domestic consumption, which is favorable for the yuan,” said Daniel Chan, executive vice president at Glory Sky Global Markets Ltd. in Hong Kong.

The yuan rose 0.14 percent to close at 6.2350 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency, which has advanced 1 percent this year, will gain as much as 2 percent in 2013, Chan forecast. One-month implied volatility, a measure of expected moves in exchange rates used to price options, fell five basis points, or 0.05 percentage point, to 1.9 percent.

China will “fully deepen reforms,” including increasing urbanization and “firmly promote opening-up” the economy, according to a report yesterday by the state-run Xinhua News Agency after the annual central economic work conference in Beijing.

Yuan Positions

The PBOC and financial institutions sold a net 73.6 billion yuan ($11.8 billion) of foreign currency in November, reversing two months of net buying and suggesting companies are betting on gains in the currency, data published by the central bank on Dec. 14 showed. Yuan positions accumulated from foreign-exchange purchases fell to 25.7 trillion yuan last month from October.

In Hong Kong’s offshore market, the yuan gained 0.08 percent to 6.2158 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards were steady at 6.3150, a 1.3 percent discount to the onshore spot rate.

The Hong Kong Monetary Authority injected HK$3.1 billion ($400 million) into its banking system on Dec. 14 to prevent the city’s currency from rising beyond its permitted trading range. The aggregate balance will increase to HK$242 billion tomorrow.

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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