China’s yuan gained the most in six weeks after the government reported the fastest export growth in five months and the central bank raised its reference rate.
The currency climbed to a 19-year high, testing the upper limit of its permitted trading band around the People’s Bank of China’s daily fixing. Overseas sales increased 11.6 percent from a year earlier in October and the nation’s $32 billion trade surplus was the largest since January 2009, official data showed on Nov. 10. The securities regulator said China will increase the quota for its Renminbi Qualified Foreign Institutional Investor program that allows yuan raised overseas to be invested in stocks and bonds in domestic markets.
“The authorities are probably feeling more comfortable with the export growth showing signs of life,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Singapore. The RQFII expansion will encourage “more renminbi buying than otherwise would be the case. A lot of things are ticking for the renminbi today.”
The yuan strengthened 0.26 percent to close at 6.2291 per dollar in Shanghai, the biggest gain since Sept. 28, according to the China Foreign Exchange Trade System. That is 1 percent stronger than the central bank’s reference rate, the maximum divergence allowed. The fixing was raised 0.15 percent to 6.2920, the largest advance since Oct. 15. The yuan is a denomination of China’s currency, the renminbi.
In Hong Kong’s offshore market, the yuan advanced 0.13 percent to 6.2250, after touching a record high at 6.2235 earlier, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards gained 0.17 percent to 6.3355 per dollar, a 1.7 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, was steady at 1.6 percent today.
Yu Yongding, a former adviser to the central bank, said today in Hong Kong the yuan will continue to face appreciation pressure even though the nation’s current account is more or less in balance.
Recent inflows of “hot money” have caused the yuan to strengthen recently, Zhang Monan, a researcher at the State Information Center, wrote in a commentary in the China Securities Journal. The exchange rate and the trade balance are at equilibrium levels, according to Zhang.
The China Securities Regulatory Commission, the central bank and the State Administration of Foreign Exchange have agreed in principle to raise the quota for the Renminbi Qualified Foreign Institutional Investor program by 200 billion yuan ($32 billion), Guo Shuqing, chairman of the securities regulator, said at a briefing in Beijing yesterday. The ruling Communist Party is holding a congress in Beijing to anoint new leaders.