China Yuan Snaps Three-Day Gain as PBOC Fixing Forces a Retreat

China’s yuan snapped a three-day advance as a lowering of the central bank’s reference rate meant the currency had to weaken to remain within its permitted trading range.

The People’s Bank of China’s fixing fell 0.02 percent to 6.3017 per dollar, 1.02 percent below yesterday’s closing level for the currency. The yuan’s value is kept within 1 percent of the reference rate. China’s official Purchasing Managers’ Index was 50.2 in October, suggesting manufacturing expanded for the first time in three months, data showed today.

“China’s export growth this year doesn’t justify a rapid yuan appreciation,” said Tommy Ong, a Hong Kong-based senior vice president of treasury and markets at DBS Bank (Hong Kong) Ltd. “Yet capital continues to flow into China on an improving growth outlook, which will continue to support the yuan.”

The yuan dropped 0.05 percent to close at 6.2405 in Shanghai, after strengthening 0.76 percent in October, according to the China Foreign Exchange Trade System. The currency touched 6.2371 on Oct. 29, the strongest level since the government unified official and market exchange rates at the end of 1993.

Hong Kong Monetary Authority added HK$2.3 billion ($297 million) into the financial system today to prevent the city’s currency from rising beyond its permitted trading range, data showed. That’s the seventh intervention followed a combined $2.6 billion injection since Oct. 19.

Hong Kong Dollar

Funds are flowing into Hong Kong after the U.S., Europe and Japan introduced policies to stimulate their economies and on optimism China’s growth is rebounding. The Hong Kong dollar was little changed at HK$7.7501 per dollar, near the top of its permitted trading range.

Yuan-denominated deposits in Hong Kong dropped to the lowest level since April 2011, the HKMA announced yesterday. The savings declined 1.2 percent in September to 545.7 billion yuan ($87.5 billion).

In Hong Kong’s offshore market, the yuan slipped 0.02 percent to 6.2428 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards fell 0.09 percent to 6.3529, a 1.8 percent discount to the onshore spot rate.

One-month implied volatility for the onshore yuan, a measure of exchange-rate swings used to price options, declined 13 basis points, or 0.13 percentage point, to 1.6 percent.

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