Yuan Snaps Three-Day Decline on Stronger Fixing, Global Usage

China’s yuan halted a three-day drop as the central bank boosted the reference rate amid dollar weakness and on efforts to boost global usage of the currency.

The People’s Bank of China raised the yuan’s daily fixing by 0.05 percent today to 6.1531 per dollar. The Bloomberg Dollar Spot Index dropped by the most in two weeks yesterday as the Federal Reserve signaled it will keep interest rates near zero even after it ends bond purchases. Direct trading of the yuan and the British pound started today in Shanghai, while Canada’s Finance Minister Joe Oliver said his country has held talks with China about establishing a yuan hub in North America.

“The yuan gets some support as the Fed is likely to keep rates low for longer,” said Banny Lam, Hong Kong-based co-head of research at Agricultural Bank of China International Securities Ltd. “China’s determination in promoting yuan usage globally is also a positive. The currency needs to be stable with mild appreciation bias to attract more global interest.”

The yuan advanced 0.03 percent to close at 6.2296 per dollar in Shanghai, after losing 0.33 percent in the last three trading days, according to China Foreign Exchange Trade System prices. The spot rate traded at a 1.2 percent discount to the daily fixing.

The yuan’s reference rate against the British currency was set at 10.4766 per pound today, compared with 10.4413 yesterday, according to the China Foreign Exchange Trade System. The spot rate slipped 0.3 percent to 10.6025, CFETS prices showed.

Global Usage

Bank of China Ltd.’s Frankfurt branch was selected as the first yuan clearing bank in the euro area, according to a PBOC announcement today. South Korea is setting up infrastructure for direct trading between the won and the yuan, which may start this year, Choi Hee Nam, the South Korean finance ministry’s director general, said today in a phone interview. In October, Singapore announced plans for a direct linkage between its currency and the yuan.

China is adjusting its economic operations to ensure minimum gross domestic product growth of 7.5 percent this year, Premier Li Keqiang said in a speech at Mansion House in London yesterday. The world’s second-largest economy will avoid a “hard landing,” he said.

In Hong Kong’s offshore market, the yuan gained 0.1 percent to 6.2278 per dollar, data compiled by Bloomberg show. Twelve-month non-deliverable forwards rose 0.08 percent to 6.2335, within 0.1 percent of the onshore spot rate.

One-month implied volatility in the onshore yuan, a gauge of expected moves in the exchange rate used to price options, declined three basis points to 1.48 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, Andrew Janes

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