Yuan Forwards Drop to Lowest Level in 2012 on Greek Stalemate

Yuan forwards declined to the weakest level this year as Greece’s failure to form a coalition government sapped demand for emerging-market assets.

New elections in Greece may be scheduled as early as June 10 after President Karolos Papoulias couldn’t broker a governing coalition, increasing investor concern that the nation will exit from the euro. Chinese financial institutions’ yuan positions accumulated from sales of foreign exchange to the central bank dropped 61 billion yuan ($9.6 billion) to 25.6 trillion yuan in April, official data showed yesterday.

“We are in that Greek cathartic moment now, in which there’d be a lot of risk-off trading,” said Cliff Tan, East Asian head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. in Hong Kong. The yuan positions data reflects there’s “capital outflows,” he said.

Twelve-month non-deliverable forwards declined 0.32 percent to 6.3938 per dollar as of 4:53 p.m. in Hong Kong, the biggest drop in more than two months, according to data compiled by Bloomberg. The contracts are at the weakest level since Dec. 29, trading at a 1.1 percent discount to the onshore spot rate.

The yuan declined 0.06 percent to close at 6.3222 per dollar in Shanghai, according to the China Foreign Exchange Trade System. It reached 6.3280 earlier, the weakest level since March 21. One-month implied volatility, a measure of exchange-rate swings used to price options, climbed 37 basis points, or 0.37 percentage point, to 2.32 percent. In Hong Kong’s offshore market, the yuan dropped 0.10 percent to 6.3255.

The People’s Bank of China set the reference rate 0.15 percent lower at 6.3205. The currency is allowed to trade as much as 1 percent on either side of the daily fixing.

Economic reports over the past week showed Europe’s debt crisis is slowing growth in the world’s second-largest economy, with exports, industrial production and new loans missing analysts’ forecasts. Overseas investment into China dropped for a sixth month in April to $8.4 billion, the Ministry of Commerce said yesterday.

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