Yuan Forwards Rise in Longest Run Since 2010 on Reform Optimism

Yuan forwards advanced for a seventh day, the longest winning streak since September 2010, on optimism China will embark on further currency reforms.

Policies related to internationalization of the yuan in the Qianhai district of Shenzhen, a testing ground for freer currency usage, may be detailed before the end of June, the Shanghai Securities News reported yesterday, citing Mayor Xu Qin. The yuan traded near a 19-year high against the dollar as central bank Governor Zhou Xiaochuan said today in Beijing that the nation should be on “high alert” over inflation and reiterated gradual reform for the yuan’s convertibility.

“We do not expect any major policy hints, but some tightening bias is quite possible, which would be supportive for the yuan,” Dariusz Kowalczyk, a strategist at Credit Agricole CIB, wrote in a research report released today before Zhou made his comments. Any indications of further currency liberalization and capital-account opening will provide support to the yuan, Kowalczyk said.

Twelve-month non-deliverable forwards climbed 0.09 percent to 6.3021 per dollar in Hong Kong, according to data compiled by Bloomberg. The contracts traded at a 1.4 percent discount to the onshore spot rate, which gained 0.04 percent to 6.2138 in Shanghai, China Foreign Exchange Trade System prices show.

The People’s Bank of China raised the fixing by 0.03 percent to 6.2726 per dollar. The currency touched 6.2124 on Jan. 14, the strongest level since the government unified official and market exchange rates at the end of 1993.

The yuan’s exchange rate is close to equilibrium, Shanghai Securities News reported today, citing Wu Xiaoling, former deputy governor of the People’s Bank of China.

In Hong Kong’s offshore market, China’s currency was little changed at 6.2085, data compiled by Bloomberg show. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, held at 1.2 percent.

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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