China’s yuan gained for a seventh week, the longest winning streak in five months, after the central bank set a record reference rate on signs capital inflows are on the rise.
The currency jumped to a 19-year high after the People’s Bank of China raised the daily fixing by 0.12 percent to 6.2506 per dollar, the strongest since a peg to the greenback ended in July 2005. The spot price is allowed to trade 1 percent either side of that. Yuan positions at Chinese banks from the sale of foreign exchange climbed 295 billion yuan ($48 billion) in February, the PBOC said April 10. The amount, an indicator of cross-border fund flows, has increased 1.1 trillion yuan since the start of December.
“Capital inflows have been strong as investors see China’s economic growth remains resilient,” said Daniel Chan, a Hong Kong-based executive vice president at Glory Sky Global Markets Ltd. “A stronger exchange rate is also favorable for the government to boost domestic demand as officials are shifting the economy away from an export-dependent one.”
The yuan strengthened 0.17 percent from a week ago to close at 6.1922 per dollar in Shanghai, prices from the China Foreign Exchange Trade System show. It gained 0.7 percent today and touched 6.1900, the strongest level since the government unified official and market exchange rates at the end of 1993.
The nation’s foreign-exchange reserves increased by $128 billion in the first quarter to a record $3.44 trillion, higher than the $3.36 trillion median estimate in a Bloomberg News survey, official data showed yesterday. Overwhelming demand for the yuan is expected to persist in both onshore and offshore markets in coming months, Commonwealth Bank of Australia strategist Andy Ji wrote in a research note yesterday. Ji said the yuan remained in the bank’s “core longs,” referring to bets that profit from appreciation.
Gross domestic product probably climbed 8 percent in the January-March period, according to the median estimate of economists ahead of data due April 15 in Beijing.
In Hong Kong’s offshore market, the Chinese currency climbed 0.19 percent this week, data compiled by Bloomberg show. It was little changed at 6.1870 per dollar today. Twelve-month non-deliverable forwards rose 0.54 percent this week, the best performance since the five days ended Jan. 11. The contracts traded at a 1 percent discount to the spot rate in Shanghai.
One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, increased 15 basis points, or 0.15 percentage point, to 1.4 percent this week.