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Yuan Breaches 6.3 to Touch a Five-Month High on Global Stimulus

Sept. 20 (Bloomberg) -- China’s yuan rose to a five-month high, breaching the 6.3 per dollar level, on speculation capital flows into emerging markets will quicken as policy makers in the world’s largest economies act to spur growth.

The Bank of Japan expanded its asset-purchase fund yesterday, joining the Federal Reserve and the European Central Bank in pumping funds into financial markets to boost economic gains. The People’s Bank of China Governor Zhou Xiaochuan wrote in a commentary published in the Financial News this week that the central bank will keep the continuity and stability of monetary policies and at the same time make adjustments that are more forward-looking, targeted and effective.

“With quantitative easing in major economies, funds are flowing into Asia and China is among the top destinations,” said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. in Hong Kong. “However, the yuan’s upside above the 6.3 level is limited as exporters are still facing great pressure.”

The yuan gained 0.09 percent to 6.3038 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency, which can trade as much as 1 percent on either side of the central bank’s daily fixing, touched 6.2945, the strongest level since April 17. The PBOC set the reference rate 0.02 percent stronger at 6.3380 per dollar today.

The yuan strengthened 0.7 percent against the greenback this month, paring its 2012 loss to 0.2 percent. That follows gains of 4.7 percent last year and 3.6 percent in 2010.

Political Pressure

Political pressure for yuan appreciation may increase in the run-up to the U.S. presidential elections in November. President Barack Obama has said China still keeps the exchange rate artificially weak, hurting American employment. Republican presidential candidate Mitt Romney vowed on the campaign trail to brand China a “currency manipulator” if he is elected.

“U.S. politics and the presidential election in November will help prevent notable yuan depreciation in the near-term because both candidates have pointed out the Chinese currency in their campaign,” said Richard Li, a senior Asia currency strategist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. “China will try to refrain from setting the yuan too weak to avoid the accusation of protectionism.”

China’s 2012 expansion will surpass the 7.5 percent growth target set earlier this year, Xinhua News Agency reported on Sept. 15, citing Fan Jianping, director of the Economic Projection Department at the State Information Center. Growth will stabilize in the second half as the government takes steps including faster approvals of major projects, Fan said.

Manufacturing Contracts

A Chinese manufacturing survey pointed to an 11th month of contraction. The preliminary reading was 47.8 for a China purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics, compared with a final level of 47.6 last month. A reading above 50 indicates expansion.

Twelve-month non-deliverable forwards on the yuan traded at a record 1.8 percent discount to the spot rate in Shanghai. The contracts was little changed at 6.4160 per dollar in Hong Kong, according to data compiled by Bloomberg.

One-month implied volatility, a measure of exchange-rate swings used to price options, was steady at 1.35 percent. In Hong Kong’s offshore market, the yuan rose 0.08 percent to 6.3158, gaining for a second day.

To contact the reporters on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net Fion Li in Hong Kong at fli59@bloomberg.net

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

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