China’s Yuan Snaps Six-Day Advance as Central Bank Lowers Fixing

China’s yuan fell for the first time in seven days after the central bank weakened the fixing by the most since July before U.S. jobs data that’s predicted to bolster the case for a reduction in Federal Reserve stimulus.

The People’s Bank of China cut the daily reference rate by 0.07 percent to 6.1395 per greenback, after raising it yesterday to the strongest level since a peg to the dollar was removed in 2005. The yuan is allowed to diverge a maximum 1 percent from the fixing. The U.S. economy added 180,000 jobs last month after boosting positions by 169,000 in August, according to the median estimate in a Bloomberg survey before data due today.

“The message is quite clear: The yuan is not a one-way bet,” said Suan Teck Kin, an economist at United Overseas Bank Ltd. in Singapore. The fixing is “not accommodating the rise in the spot market as it would encourage more strengthening of the currency. You also have the dollar slightly coming back in anticipation of the non-farm payrolls,” he said.

The yuan fell 0.02 percent to 6.0935 per dollar, China Foreign Exchange Trade System prices show. It reached 6.0915 on Oct. 18, the strongest since the government unified the official and market exchange rates at the end of 1993. Twelve-month non-deliverable forwards slipped 0.01 percent to 6.1545 per dollar in Hong Kong, data compiled by Bloomberg show. The contracts are trading at a 1 percent discount to the onshore spot rate.

Federal Reserve Chairman Ben S. Bernanke said in June the central bank may start reducing $85 billion of monthly bond purchases if the U.S. economy grows as projected.

Direct Trade

Singapore and China will introduce direct trading between their currencies, the Monetary Authority of Singapore said in a statement today. The two nations also agreed on a 50 billion yuan ($8.2 billion) quota for financial institutions in Singapore to invest in China’s domestic securities under the Renminbi Qualified Foreign Institutional Investor.

A freely floating and convertible yuan in the Shanghai free-trade zone is “impossible” and “ridiculous,” Mei Xinyu, a researcher at the International Trade and Economic Cooperation Institute of the Ministry of Commerce, wrote in a commentary in the China Daily today. The zone aims to promote trade and can’t become an offshore financial center without the support of the “real economy,” Mei wrote.

In Hong Kong’s offshore market, the yuan weakened 0.02 percent to 6.0886 per dollar, according to data compiled by Bloomberg. One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, slipped two basis points, or 0.02 percentage point, to 1.24 percent.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

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

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