The currency advanced by the most in a month as the People’s Bank of China strengthened the daily fixing by 0.1 percent today to 6.0950 per dollar, the highest since a peg to the greenback was scrapped in July 2005. U.S. employers added 74,000 workers in December, the least since January 2011, the Labor Department said on Jan. 10. China had a trade surplus of $25.6 billion in December, according to official figures released Jan. 10.
“Exports are doing relatively well and the trade balance is still exerting pressure for yuan appreciation,” said Sean Yokota, head of Asian strategy in Singapore at Skandinaviska Enskilda Banken AB. “The second thing is, China has in the past bought the dollar and Treasuries to prevent yuan appreciation. Now, you don’t want to be accumulating Treasuries” with the Fed cutting stimulus, he said.
The yuan gained 0.14 percent to 6.0434 per dollar at the close in Shanghai, according to China Foreign Exchange Trade System. It reached 6.0424 earlier, the strongest level since China unified the official and market exchange rates at the end of 1993.
The offshore yuan gained 0.08 percent to 6.0279 per dollar as of 4:44 p.m. in Hong Kong and touched 6.0272 earlier, the strongest since 1998, data compiled by Bloomberg show. Twelve-month non-deliverable forwards climbed 0.15 percent to 6.1010, narrowing the discount to the onshore spot rate to 0.94 percent.
China’s central bank outlined plans in November to end daily intervention in the currency market and widen the yuan’s trading band. A detailed plan on foreign-exchange reform will follow this year, PBOC Deputy Governor Yi Gang wrote in a Jan. 7 article on the China Forex magazine’s website.
Fed officials saw diminishing economic benefits from their bond-buying program, according to the minutes of the Federal Open Market Committee’s Dec. 17-18 meeting published last week. The U.S. central bank said last month it will cut its monthly bond buying by $10 billion to $75 billion starting January.
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 1.22 percent.
China may report December figures on total financing, foreign-exchange reserves, money supply and bank lending as early as today. Official data on Jan. 10 showed exports increased 4.3 percent last month from a year earlier, while imports jumped 8.3 percent.
To contact the reporter on this story: David Yong in Singapore at email@example.com