Yuan Touches 19-Year High on Stronger Fixing Before G-20 Meeting

The yuan climbed to a 19-year high after the central bank raised its reference rate for a third day, even as banks cut growth forecasts for China and Moody’s Investors Service lowered its outlook on the sovereign rating.

The People’s Bank of China strengthened the daily fixing by 0.07 percent to 6.2408 per dollar, before a meeting of the Group of 20 nations this week that may discuss the impact of exchange rates on global trade. The currency is allowed to trade as much as 1 percent on either side of the fixing. Moody’s scaled back today its outlook for China’s credit rating to stable from positive, citing risks from local-government debt.

“The stronger fixing may be a gesture, given the potential external pressure” to allow the yuan to rise further, said Tommy Xie, a treasury economist at Oversea-Chinese Banking Corp. in Singapore. “This trend may not last because of the weaker economic data.”

The yuan gained 0.1 percent to 6.1831 per dollar in Shanghai, according to prices from the China Foreign Exchange Trade System. It earlier touched 6.1798, the strongest level since the government unified official and market exchange rates at the end of 1993.

The U.S. Treasury Department asked Japan to refrain from devaluing the yen, while declining to name China as a currency manipulator in a semi-annual currency report to Congress on April 12. The G-20 nations meet in Washington on April 18-19.

Economic Growth

China’s economy grew 7.7 percent in the three months ended March 31 from a year earlier, the statistics bureau said yesterday, after a 7.9 percent gain in the previous quarter. JPMorgan Chase & Co. pared its estimate for this year’s increase in China’s gross domestic product to 7.8 percent from 8.2 percent yesterday, while HSBC Holdings Plc (HSBA) lowered its projection to 8.2 percent from 8.6 percent.

“We expect the yuan to weaken from here to the year-end,” said Jackit Wong, a regional economist at Natixis Asia Ltd. in Hong Kong. “The weak data in the first quarter says people will have to get used to below-8 percent growth for many quarters to come.”

In Hong Kong’s offshore market, the yuan fell to 6.1875 per dollar from 6.1860 yesterday and reached a one-week low of 6.1965, data compiled by Bloomberg show. Twelve-month non-deliverable forwards were little changed at 6.2570.

One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, decreased two basis points, or 0.02 percentage point, to 1.35 percent.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net

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

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