China Yuan Gains on Record Fixing Before Geithner Visits Beijing

Yuan Gains Most Since April 17 Before Geithner Visits Beijing
The yuan gained 0.18 percent to 6.2988 per dollar at 9:37 a.m. in Shanghai. Photographer: Nelson Ching/Bloomberg

May 2 (Bloomberg) -- The yuan strengthened before talks between U.S. and Chinese officials in Beijing tomorrow that will probably include discussion of whether the currency is undervalued.

The fourth round of the U.S.-China strategic and economic dialogue involves U.S. Treasury Secretary Timothy F. Geithner and officials led by Chinese Vice Premier Wang Qishan. The People’s Bank of China raised the fixing 0.19 percent to 6.2670 per dollar today, the strongest level since a peg ended in July 2005 and 0.7 percent stronger than last week’s closing price.

“That’s definitely a friendly fixing for tomorrow’s meeting and it’s quite a natural move for China,” said Tommy Ong, the Hong Kong-based senior vice president of treasury and markets at DBS (Hong Kong). “Officials want to show their willingness to allow market forces to play a bigger role in the yuan’s exchange rate.”

The yuan rose 0.05 percent to close at 6.3070 per dollar in Shanghai, at a 0.63 percent discount to the reference rate, according to the China Foreign Exchange Trade System. The currency gained as much as 0.19 percent earlier, the most in two weeks. It is allowed to trade 1 percent either side of the daily fixing.

One-month implied volatility for the currency, a measure of exchange-rate swings used to price options, was unchanged at 2.1 percent.

U.S.-China Relation

The yuan’s 23 percent rally against the dollar in the past five years doesn’t impress Republican presidential candidate Mitt Romney, who vows on the campaign trail to brand China a “currency manipulator.” The view is more tempered in Washington, where Geithner praises China for letting the yuan trade more freely.

Lawmakers from Romney’s own party, including House Speaker John Boehner and Representative Dave Camp, say a Senate-backed bill punishing China for undervaluing the currency to boost exports ignores such issues as intellectual-property theft and might prompt a trade war.

Nomura Holdings Inc. trimmed bets on yuan gains by half to $25 million, saying relations between China and the U.S. may sour because of controversy related to human-rights activist Chen Guangcheng.

Chen, who fled his home in eastern China’s Shandong province late last month, left the U.S. Embassy in Beijing after staying there for six days, the official Xinhua News Agency reported today. China demanded an apology for allowing Chen into the embassy, Xinhua said, citing Foreign Ministry spokesman Liu Weimin.

Asian Currencies

Asian currencies advanced after reports showing expansion in the U.S. and Chinese manufacturing brightened the outlook for regional exports to the world’s two biggest economies. The Purchasing Managers’ Index in China rose to 53.3 in April, the fifth straight reading above the 50 level dividing expansion from contraction, according to official data yesterday.

In Hong Kong’s offshore market, the yuan slipped 0.05 percent to 6.3035. Twelve-month non-deliverable forwards rose 0.03 percent to 6.3442, a 0.6 percent discount to the onshore spot rate, according to data compiled by Bloomberg.

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

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net