Yuan Gains to 19-Year High, Testing Top Band, on Growth Optimism

Yuan Gains to 19-Year High, Testing Top Band, on Growth Optimism
The yuan rose 0.05 percent to 6.2262 per dollar as of 10:23 a.m. in Shanghai. Photographer: Jerome Favre/Bloomberg

China’s yuan climbed to a 19-year high, reaching the top end of its permitted trading range for a seventh straight day, on bets growth in the world’s second-largest economy will regain momentum.

Economic growth will keep rebounding slightly in the rest of this year, Shanghai Securities News reported today, citing Fan Jianping, chief economist at the State Information Center. China’s new Politburo Standing Committee, which rules the party and hence the country, will meet the media on Nov. 15, a day after the congress ends. China equity funds recorded a ninth straight week of inflows in the week ended Nov. 7, EPFR Global data shows.

“Capital returns to China as over-pessimism on the economy has been dismissed by recent data,” said Tommy Ong, a Hong Kong-based senior vice president of treasury and markets at DBS Bank (Hong Kong) Ltd. “There’s also an expectation that the government will focus on growth instead of stability when the congress ends.”

The yuan rose 0.04 percent to close at 6.2265 per dollar in Shanghai, according to the China Foreign Exchange Trade System. It touched 6.2262 earlier, the strongest level since the government unified the official and market exchange rates at the end of 1993. The currency also traded at the maximum 1 percent premium to the People’s Bank of China’s reference rate, which was raised by 0.05 percent to the highest level since May 9 at 6.2891 per dollar today.

Offshore Market

Non-resident Hong Kong customers deposited over 800 million yuan ($128 million) in accounts opened in the city as of the end of September, the Hong Kong Monetary Authority said yesterday. The city allowed non-residents to purchase yuan at offshore rates in August.

In Hong Kong’s offshore market, the yuan advanced 0.07 percent to 6.2193 per dollar, according to data compiled by Bloomberg. It touched 6.2170 earlier, a record high. Twelve-month non-deliverable forwards gained 0.06 percent to 6.3310, a 1.7 percent discount to the onshore spot rate. One-month implied volatility for the yuan, a measure of exchange-rate swings used to price options, was steady at 1.6 percent.

Zhou Xiaochuan, governor of the People’s Bank of China, said direct trading of the yuan against the Australian dollar was a “natural outcome” given the scale of the economic relationship between the two countries, the Australian Financial Review reported today.

“We need to have direct trading between the two currencies,” AFR cited Zhou as saying at a Beijing press conference.

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