The yuan advanced by the most in more than five weeks after the People’s Bank of China raised the currency’s reference rate for the first time in three days amid global growth optimism.
The People’s Bank of China strengthened the daily yuan fixing by 0.03 percent to 6.2804 per dollar. It drained funds from the financial system yesterday via repurchase agreements for the first time in eight months. A report yesterday showed economic sentiment in Germany increased to the highest level in almost three years. Europe and the U.S. are the top destinations for Chinese goods.
“China remains an export-dependent nation, so a better outlook in Europe will support the yuan,” said Stella Lee, president at Success Wealth Management Ltd. in Hong Kong. “The first repos in eight months fueled concerns of tightening and hence bolstered demand for the yuan.”
The currency rose 0.11 percent, the biggest increase since Jan. 11, to close at 6.2376 per dollar in Shanghai, prices from the China Foreign Exchange Trade System show. The currency lost 0.24 percent in the five trading days through yesterday, when it touched 6.2454, the lowest level since Dec. 14. Spot prices are allowed to diverge a maximum 1 percent from the reference rate.
The central bank gauged demand today for a sale of 28- and 91-day repurchase contracts tomorrow, according to a trader.
In Hong Kong’s offshore market, the currency gained 0.09 percent to 6.2348 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards climbed 0.06 percent to 6.3195, a 1.3 percent discount to the onshore spot rate.
One-month implied volatility in the yuan, a measure of expected moves in the exchange rate used to price options, was unchanged at 1.2775 percent, according to data compiled by Bloomberg.