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Yuan Has Monthly Advance on Optimism China Growth to Accelerate

Jan. 31 (Bloomberg) -- China’s yuan completed a monthly advance on optimism growth in Asia’s largest economy is set to quicken as manufacturing gathers momentum.

The official Purchasing Managers’ Index was 51 in January, compared with 50.6 in December, according to the median forecast in a Bloomberg survey before data due Feb. 1. That would be the fourth month of expansion. Gross domestic product rose 7.9 percent in the fourth quarter from a year earlier, accelerating for the first time in two years, a government report showed Jan. 18. The Federal Reserve said yesterday it will keep purchasing securities at the rate of $85 billion a month, a policy that boosts the supply of dollars.

“As China’s economy is set for stronger growth this year, there’s more upside to the yuan,” said Stella Lee, president at Success Wealth Management Ltd. in Hong Kong. “A continuation of quantitative easing in the U.S. will retain funds in emerging markets, if not spurring more flows into the region.”

The yuan climbed 0.03 percent today to close at 6.2188 per dollar in Shanghai, prices from the China Foreign Exchange Trade System show. The currency rose 0.18 percent this month and touched a 19-year high at 6.2124 on Jan. 14.

The People’s Bank of China raised the yuan’s reference rate for a second day, setting it 0.02 percent stronger at 6.2795 per dollar. The spot is allowed to deviate from the reference rate by a maximum 1 percent.

In Hong Kong’s offshore market, the currency rose 0.02 percent to 6.2145 per dollar, extending this month’s gain to 0.11 percent, according to data compiled by Bloomberg. Twelve-month non-deliverable yuan forwards slipped 0.1 percent today to 6.3115, and traded at a 1.5 percent discount to the onshore exchange rate, the data show.

One-month implied volatility in the Chinese currency, a measure of expected moves in the exchange rate used to price options, was unchanged at 1.35 percent today and has declined 35 basis points this month, data compiled by Bloomberg show.

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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