Yuan Snaps Two-Day Decline as Export Growth Seen Accelerating

The yuan advanced for the first time in three days before data due this week that economists forecast will show exports rising at the fastest pace in almost a year.

Overseas sales increased 17 percent in January, the most since February 2012, according to the median forecast in a Bloomberg News survey before an official report on Feb. 8. China’s services output expanded in January at the fastest pace in four months, according to a Purchasing Managers’ Index released today by HSBC Holdings Plc and Markit Economics said today. China’s financial markets will be closed next week for the Lunar New Year holidays.

“Demand for commodities and goods usually rises before the weeklong New Year holidays,” said Kenix Lai, a currency analyst at Bank of East Asia Ltd. (23) in Hong Kong. This will increase pressure for the yuan to strengthen, she said.

The yuan rose 0.05 percent to close at 6.2294 dollar in Shanghai, prices from the China Foreign Exchange Trade System show. The People’s Bank of China raised the currency’s daily fixing by 0.02 percent to 6.2850 per dollar today. That’s the first increase in three days. The yuan is allowed to diverge a maximum 1 percent from the reference rate.

The Dollar Index (DXY) climbed 0.5 percent since the end of last week on concern Europe’s debt crisis will worsen. The yield on Spain’s 10-year government bonds are at an eight-week high as Prime Minister Mariano Rajoy struggles to impose austerity and restore confidence amid calls for him to resign on corruption allegations. Rates on Italian debt rose as polls showed Silvio Berlusconi had closed the gap on his rival before elections this month even as he appeals a prison sentence for tax fraud.

One-month implied volatility in the yuan, a measure of expected moves in the exchange rate used to price options, dropped five basis points, or 0.05 percentage point, to 1.3 percent, according to data compiled by Bloomberg.

In Hong Kong’s offshore market, the yuan gained 0.05 percent to 6.2145 per dollar, data compiled by Bloomberg show. Twelve-month non-deliverable forwards climbed 0.07 percent to 6.3185, trading at a 1.4 percent discount to the onshore spot rate.

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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