Yuan Snaps Two-Day Drop on Optimism Economy Won’t Slow Further

China’s yuan halted a two-day decline on optimism the world’s second-largest economy is stabilizing after two quarters of slowing growth.

The People’s Bank of China raised its reference rate for the sixth day in a row, the longest run of gains since November. China’s economy and financial sector showed signs of stability recently, though it is too early to say a rebound is under way, China Securities Journal said in a front-page commentary today. Exports (CNFREXPY) and imports increased more than economists forecast in July, government data showed last week.

“Strong trade data in July shows stabilizing signs of the economy, which are supportive of the yuan,” said Banny Lam, the Hong Kong-based co-head of research at Agricultural Bank of China International Securities Ltd., a unit of the nation’s third-largest lender.

The currency rose 0.01 percent to close at 6.1223 per dollar in Shanghai, China Foreign Exchange Trade System prices show. That is 0.72 percent stronger than the central bank’s fixing, which was set at 6.1665 today. The yuan gained as much as 0.07 percent earlier.

The spot rate reached 6.1143 on Aug. 8, the strongest level since the government unified the official and market exchange rates at the end of 1993. The yuan has advanced 1.8 percent against the dollar this year, the best performance among Asia’s 11 most-traded currencies tracked by Bloomberg.

In Hong Kong’s offshore market, the yuan fell 0.02 percent to 6.1197 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards dropped 0.1 percent to 6.2615, a 2.2 percent discount to the onshore exchange rate.

One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, declined four basis points, or 0.04 percentage point, to 1.19 percent. That’s the lowest level since April 1.

China is likely to widen the yuan’s trading band to 2 percent from 1 percent before the end of September, Agricultural Bank of China’s Lam said.

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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