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Yuan Touches One-Week Low Amid Speculation PBOC Countered Gains

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Dec. 11 (Bloomberg) -- China’s yuan retreated from the upper limit of its trading band, reaching a one-week low, on speculation the central bank intervened to combat appreciation that hurts exporters.

The yuan rose as much as 0.28 percent today to 6.2277 per dollar in Shanghai, exceeding today’s reference rate of 6.2906 by the maximum 1 percent allowed by the People’s Bank of China. The currency subsequently fell to 6.2558, 0.17 percent weaker than yesterday’s closing level and the lowest it has been since Dec. 4, before closing little changed at 6.2460, according to the China Foreign Exchange Trade System.

Overseas sales climbed 2.9 percent from a year earlier in November, the least in three months, the customs bureau reported yesterday. The median estimate in a Bloomberg survey of economists was for a 9 percent increase. New yuan loans amounted to 522.9 billion yuan ($83.9 billion) in November and 505.2 billion yuan in October, the lowest monthly totals since September 2011, according to data released today.

“The market is speculating the central bank probably came out to buy dollars,” said Liu Dongliang, a senior analyst in Shenzhen at China Merchants Bank Co., the nation’s sixth-biggest lender. “After all, the outlook for overseas demand is still unclear.”

One-month implied volatility in the yuan, a measure of expected moves in exchange rates used to price options, dropped five basis points, or 0.05 percentage point, to 1.55 percent, according to data compiled by Bloomberg. Today’s closing level for the currency was 0.7 percent stronger than the reference rate, the smallest gap since Oct. 15.

‘Still Bullish’

In Hong Kong’s offshore market, the yuan declined 0.2 percent to 6.2245 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards fell 0.11 percent to 6.3223. That is 1.2 percent weaker than the Shanghai spot rate, which reached a 19-year high of 6.2223 on Nov. 27.

“The market is still bullish given the test on the upper band and the improving data, but the PBOC wants to rein in the optimism,” said Suresh Kumar Ramanathan, a regional currency strategist at CIMB Investment Bank Bhd. in Kuala Lumpur. “Also, any addition to Federal Reserve easing moves will be a negative for the dollar,” supporting Asian currencies, he said.

Federal Reserve policy makers begin a two-day meeting today that will be followed by updated projections on economic growth, unemployment, inflation and interest rates on Dec. 12. Fed officials are considering whether to supplement $40 billion a month of mortgage-bond purchases with Treasury purchases when their Operation Twist program expires at the end of the month.

To contact the reporter on this story: Judy Chen in Shanghai at xchen45@bloomberg.net.

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