China’s yuan jumped the most since December and strengthened beyond 6.20 per dollar for the first time in 19 years after the central bank set a record reference rate for the currency.
The People’s Bank of China raised the fixing by 0.14 percent, the most since Feb. 8, to 6.2586 per dollar today. The yuan is allowed to trade 1 percent on either side of the rate. An official Purchasing Managers’ Index was at 50.9 in March, the highest since April 2012 and above the 50 level that represents the dividing line between growth and contraction, data showed yesterday.
“China’s economic growth is gaining momentum, which is positive for the yuan,” said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. in Hong Kong. “An improved economy also provides the condition for accelerating reforms on the exchange-rate mechanism.”
The yuan rose 0.15 percent to close at 6.1986 per dollar in Shanghai, prices from the China Foreign Exchange Trade System show. That’s the biggest gain since Dec. 13 and the strongest level since the government unified official and market exchange rates at the end of 1993. The currency ended the session at a 0.97 percent premium to the fixing.
China may face “relatively large” capital inflows because of loose monetary policy in the U.S., China Securities Journal reported today, citing former central bank adviser Yu Yongding.
The Federal Reserve is using a near-zero benchmark interest rate and $85 billion a month of open-ended bond purchases to help revive the U.S. economy, policies that boost the supply of dollars and spur demand for higher-yielding assets elsewhere. China’s 10-year sovereign bonds yield 3.53 percent, compared with 1.83 percent for similar-maturity U.S. Treasuries.
In Hong Kong’s offshore market, the Chinese currency climbed 0.11 percent to 6.1960 per dollar, the strongest level since Jan. 23, data compiled by Bloomberg show. Twelve-month non-deliverable forwards advanced 0.15 percent to 6.2880, a 1.4 percent discount to the spot rate in Shanghai.
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, added six basis points, or 0.06 percentage point, to 1.22 percent. That’s the largest increase since January.