Yuan Rises to 20-Year High on Record Fixing, Faster Inflation

Photographer: Tomohiro Ohsumi/Bloomberg

Inflation quickened to 3.1 percent last month, the fastest pace since February, data showed today. Close

Inflation quickened to 3.1 percent last month, the fastest pace since February, data showed today.

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Photographer: Tomohiro Ohsumi/Bloomberg

Inflation quickened to 3.1 percent last month, the fastest pace since February, data showed today.

China’s yuan strengthened to a 20-year high after the central bank set the currency’s reference rate at a record high and as consumer prices advanced the most in seven months.

The People’s Bank of China raised its daily fixing by 0.08 percent to 6.1406 per dollar, the strongest since a peg to the greenback was lifted in July 2005. Inflation (CNCPIYOY) quickened to 3.1 percent last month, the fastest pace since February, data showed today. The nation’s foreign-exchange reserves, the world’s largest, rose to a record $3.66 trillion as of Sept. 30 from $3.5 trillion at the end of June, according to central bank data released today.

“The global recovery remains patchy and China is looking to shift growth toward domestic consumption,” said Jonathan Cavenagh, a currency strategist in Singapore at Westpac Banking Corp. “If inflation continues to trend up, we are going to be in a stronger environment for the Chinese currency.”

The yuan gained 0.21 percent, the most since May 8, to close at 6.1079 per dollar in Shanghai, China Foreign Exchange Trade System prices show. It touched 6.1073 earlier, the strongest since the government unified the official and market exchange rates at the end of 1993. The yuan has risen 35 percent against the greenback since the end of its peg, when it traded around 8.2765, according to data compiled by Bloomberg.

There could be changes to the yuan’s trading band after China’s central committee meets in November, according to Sacha Tihanyi, a Hong Kong-based currency strategist at Scotiabank. The likely outcome is for the range to be widened to 1.5 percent or even 2 percent from the current 1 percent, he wrote in a note today.

New Loans

New local-currency loans were 787 billion yuan in September, compared with 623.2 billion yuan a year earlier, official data showed today. Exports (CNFREXPY) dropped 0.3 percent from a year earlier, trailing all 46 estimates in a Bloomberg survey, while imports rose a more-than-forecast 7.4 percent, according to trade data released over the weekend.

In Hong Kong’s offshore market, the yuan appreciated 0.09 percent to a record 6.1010 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards rose 0.19 percent to 6.1500, the strongest since Bloomberg began compiling the data in 1998. The contracts were at a 0.7 percent discount to the onshore rate. Hong Kong’s stock market is shut today for a public holiday.

One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, fell one basis point, or 0.01 percentage point, to 1.24 percent.

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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