Yuan Forwards Weaken for Second Day After Inflows Ease in May

Yuan forwards fell for a second day after a report showed the amount of capital that flowed into the nation last month was the least since August.

Yuan positions at financial institutions accumulated from foreign-exchange purchases, a barometer of inflows, rose 38.7 billion yuan ($6.2 billion) from a month earlier, compared with a 117 billion yuan increase in April, data showed yesterday. China held $1.26 trillion in U.S. Treasuries at the end of April, with holdings falling for a third month in the longest run of declines since 2011, the Treasury Department said in a monthly report released yesterday.

“Inflows continue to slow on the uncertainty over China’s economy, as it might be too early to call for a turnaround,” said Bruce Yam, a Hong Kong-based currency strategist at Sun Hung Kai Forex. “Less U.S. Treasuries holdings by China probably signals reduced intervention in the yuan’s exchange rate as one-way appreciation bets have been dashed.”

Twelve-month non-deliverable forwards dropped 0.1 percent to 6.2345 per dollar as of 4:41 p.m. in Hong Kong, according to data compiled by Bloomberg. The contracts traded at a 0.12 percent discount to the onshore yuan, which declined 0.03 percent to close at 6.2269 in Shanghai, China Foreign Exchange Trade System prices show. The People’s Bank of China strengthened the daily fixing 0.01 percent to 6.1529.

Foreign direct investment fell 6.7 percent in May from a year earlier, compared with the median estimate for a 3.2 percent increase in a Bloomberg survey, a report showed today.

The central bank raised the reference rate by 0.19 percent last week in its biggest increase this year, after a record five straight months of weakening the fixing. The yuan has dropped 2.8 percent this year in Asia’s worst performance.

U.K. Visit

Premier Li Keqiang arrived in the U.K. yesterday and will meet Queen Elizabeth II at Windsor Castle today before traveling to London to meet Prime Minister David Cameron at his Downing Street residence. China Construction Bank Co confirmed it will sign agreement on yuan clearing in the U.K. on June 19, according to e-mailed response to questions from Bloomberg News.

In Hong Kong’s offshore market, the yuan fell 0.1 percent to 6.2275, data compiled by Bloomberg show. One-month implied volatility in the onshore yuan, a gauge of expected moves in the exchange rate used to price options, was steady at 1.47 percent, data compiled by Bloomberg show.

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

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

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