Yuan Steady as Weaker Fixing Tempered by Stimulus Speculation

The yuan closed little changed as a weaker daily reference rate and the International Monetary Fund’s downgrade of its growth estimate was tempered by speculation China will enact more stimulus measures.

The People’s Bank of China lowered the fixing by 0.02 percent to 6.3441 per dollar, which was 0.9 percent weaker than yesterday’s closing spot price. The IMF cut its estimate for 2012 growth by 0.2 percentage point to 7.8 percent. The Chinese Communist Party is holding its congress starting Nov. 8, which will also include a once-a-decade power handover, while U.S. presidential elections are due next month.

“The PBOC doesn’t favor any fast gains in the yuan given the fixings are so much weaker than the spot,” said Patrick Cheng, a currency analyst at Haitong International Securities Co. in Hong Kong. “Slower global growth is still taking a toll on Chinese exports. However, the yuan may keep edging to new highs occasionally as the congress and U.S. elections are approaching.”

The yuan closed at 6.2878 per dollar in Shanghai, from yesterday’s 6.2872, according to the China Foreign Exchange Trade System. The currency touched 6.2812 yesterday, the strongest level since China unified official and market exchange rates at the end of 1993. Yesterday’s high exceeded the central bank’s reference rate by a record 0.98 percent, near to the maximum 1 percent divergence that is permitted.

Yuan Outlook

The most-accurate forecasters for the yuan predict the currency will weaken this quarter as China prevents gains that may hurt exports. The yuan will slip 0.2 percent to 6.3 per dollar in the three months through December, according to Credit Agricole CIB and BNP Paribas SA, which had the best estimates for the last six quarters as measured by Bloomberg Rankings.

In Hong Kong’s offshore market, the yuan was little changed at 6.2920. It touched 6.2881 earlier, the strongest level since Feb. 9. Twelve-month non-deliverable forwards fell 0.02 percent to 6.3930, a 1.6 percent discount to the onshore spot rate. One-month implied volatility, a measure of exchange-rate swings used to price options, was little changed at 1.2 percent.

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