Yuan 1-Month Forwards Rise to Record on PBOC Fixing, Biden Visit

One-month yuan forwards touched the strongest level in at least 15 years as China’s central bank raised the currency’s reference rate to a record before U.S. Vice President Joseph Biden visits Beijing.

The People’s Bank of China boosted the daily fixing by 0.08 percent to 6.1300 per dollar, the highest since a peg to the greenback was removed in 2005. The one-month non-deliverable contracts gained as much as 0.07 percent to 6.1240 per dollar, the highest level in Bloomberg data going back to 1998, and were at 6.1245 as of 10:18 a.m. in Hong Kong.

Biden departs from Tokyo today to meet with Chinese officials over a new air defense zone introduced by China over disputed islands with Japan. The vice president said yesterday the U.S. is “deeply concerned by the attempt to unilaterally change the status quo in the East China Sea.” A report from the Society for Worldwide Interbank Financial Telecommunication yesterday showed the yuan overtook the euro to become the second-most used currency in global trade finance.

“The fixing is in line with China’s efforts to promote the yuan as a trade-settlement currency, which has been making progress,” said Irene Cheung, a Singapore-based currency strategist at Australia & New Zealand Banking Group Ltd. That also coincided with “Biden’s visit today and China will continue to allow the yuan to appreciate,” she said.

Yuan Finance

China’s currency accounted for 8.66 percent of letters of credit and collections used in global trade finance in October, second only to the dollar and surpassing the euro’s 6.64 percent share, the Brussels-based Swift said in a statement.

The onshore yuan was little changed at 6.0913 per dollar in Shanghai, compared with yesterday’s close of 6.0924, according to the China Foreign Exchange Trade System. The spot rate was 0.6 percent stronger than the reference rate, compared with the maximum allowed divergence of 1 percent.

Cheung forecasts the yuan will appreciate to 6.07 by year-end, the same rate as the median estimate in a Bloomberg survey of analysts for the end of the first quarter.

In Hong Kong’s offshore market, the yuan traded at 6.0828 per dollar, from 6.0853 yesterday, data compiled by Bloomberg show. Twelve-month non-deliverable forwards rose 0.1 percent to 6.1475, a 0.9 percent discount to the onshore spot rate.

One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, rose five basis points, or 0.05 percentage point, to 1.66 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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.