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Yuan Strongest Since 1993 as Forwards Gain on Faster Inflation

Jan. 11 (Bloomberg) -- The yuan strengthened beyond 6.22 against the dollar for the first time in 19 years on speculation China will tolerate appreciation to temper inflation as economic growth picks up.

Consumer-price gains quickened to 2.5 percent in December from a year earlier, compared with a 2 percent increase in November and the 2.3 percent estimate in a Bloomberg survey of 42 economists, the statistics bureau reported today. Exports climbed 14.1 percent last month and imports rose 6 percent, with both numbers exceeding forecasts, official data showed yesterday.

“Recent data have dashed concerns on China’s economy,” said Daniel Chan, executive vice-president at Glory Sky Global Markets Ltd. in Hong Kong. “Higher inflation means officials will accommodate a stronger yuan to lower prices of imports.”

The currency strengthened 0.13 percent to close at 6.2161 per dollar in Shanghai and touched 6.2126, the highest level since the government unified official and market exchange rates at the end of 1993, according to the China Foreign Exchange Trade System. It climbed 0.23 percent this week.

Twelve-month non-deliverable forwards rose 0.73 percent in the past five days to 6.2768, the best performance since the period ended Oct. 28, 2011, data compiled by Bloomberg show. The contracts dropped 0.1 percent today.

Stronger Fixing

The People’s Bank of China set the yuan’s reference rate 0.13 percent stronger, the biggest increase since November, at 6.2712 per dollar today. The currency is allowed to trade as much as 1 percent on either side of the daily fixing.

The government will release fourth-quarter gross domestic product numbers, as well as figures for December industrial production, retail sales and fixed-asset investment on Jan. 18. Economic growth probably accelerated to 7.8 percent over the three months from a year earlier, after contracting for seven straight quarters, according to a Bloomberg News survey of analysts.

In Hong Kong’s offshore market, the yuan advanced 0.09 percent to 6.1865 per dollar. It touched 6.1735 earlier, the strongest level since trading started in 2010.

One-month implied volatility, a measure of expected moves in exchange rates used to price options, increased 30 basis points, or 0.30 percentage point, to 1.75 percent this week, according to data compiled by Bloomberg. It climbed 10 basis points today.

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

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

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