China Yuan Erases Gain to Touch Eight-Week Low Before Holiday

China’s yuan erased an earlier gain and touched an eight-week low on speculation investors pared holdings ahead of next week’s Lunar New Year holiday.

The currency lost 0.09 percent since Feb. 1, falling for a third week, on concern a slide in the yen will prompt Chinese policy makers to rein in the exchange rate to protect exporters. The yuan strengthened as much as 0.14 percent earlier today as a report showed the nation’s overseas shipments grew more than economists estimated and after the central bank bolstered the currency’s reference rate by the most since October. The yen fell 7.7 percent against the dollar this year.

“People are just taking positions off because they have a very long holiday coming up,” said Andy Ji, a foreign-exchange strategist in Singapore at Commonwealth Bank of Australia.

The yuan closed at 6.2325 per dollar in Shanghai, compared with 6.2322 yesterday, prices from the China Foreign Exchange Trade System show. The currency touched 6.2417 today, the weakest level since Dec. 14. The yuan is allowed to diverge a maximum 1 percent from the daily reference rate.

The People’s Bank of China raised the fixing by 0.17 percent today to 6.2793 per dollar, the biggest increase since Oct. 15. The yen rebounded today after European Central Bank President Mario Draghi said the euro’s recent gains may slow growth. China’s overseas sales climbed 25 percent in January from a year earlier, official data showed today. That compares with a 14.1 percent advance in December and a median estimate in a Bloomberg News survey of economists for a 17.5 percent gain.

Trade Surplus

“China no longer has to weaken the fixing to compensate for the impact from a weakening yen,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. China is set “for a stronger currency this year as the trade surplus is higher,” he said.

Chinese markets will be closed next week for the Lunar New Year. The holiday fell in the last full week of January in 2012. The trade surplus was $29.15 billion in January, compared with a median projection for $24.7 billion in the survey, and $27.1 billion a year ago.

The government reported today that annual inflation slowed last month to 2 percent, a number that may have been distorted by the timing of the Lunar New Year holiday and matching the median estimate in a Bloomberg News survey. In December, the figure was 2.5 percent.

In Hong Kong’s offshore market, the yuan dropped 0.06 percent to 6.2258 per dollar today for a weekly loss of 0.20 percent, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards were little changed at 6.3205, a 1.4 percent discount to the onshore spot rate. The contracts slipped 0.02 percent this week.

One-month implied volatility in the yuan, a measure of expected moves in the exchange rate used to price options, declined eight basis points, or 0.08 percentage point, this week to 1.3 percent, according to data compiled by Bloomberg.

To contact the reporters on this story: Fion Li in Hong Kong at fli59@bloomberg.net; Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

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

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