Yuan forwards have biggest monthly advance since January 2012 on expectations China will allow appreciation to pick up as the currency becomes more widely used for trade and investment globally.
Yuan deposits in Hong Kong, the largest pool outside of China, climbed for a sixth month in March to a record 668 billion yuan ($108 billion), the city’s monetary authority said today. Global yuan payments rose 32.7 percent, the Society for Worldwide Interbank Financial Telecommunication announced April 25. Morgan Stanley raised its end-2013 yuan forecast to 6.1 per dollar from 6.3 yesterday, citing prospects for a wider trading band and a larger base of market participants.
Twelve-month non-deliverable forwards rose 1.1 percent this month to 6.2320 per dollar as of 4:48 p.m. in Hong Kong, according to data compiled by Bloomberg. The contracts were steady today and traded at a 1.1 percent discount to the closing spot rate in Shanghai on April 26. China’s financial markets are shut for a three-day Labor Day holiday and trading will resume on May 2.
“The yuan is likely to gain further when its trading band is widened,” said Patrick Cheng, foreign-exchange analyst at Haitong International Securities Co. in Hong Kong. “Growing demand for yuan as an investment and reserve currency will also support the exchange rate.”
Hong Kong Monetary Authority relaxed yuan capital rules for local banks last week, a move BNP Paribas Investment Partners predicts will increase liquidity and offshore lending. Australia’s central bank announced plans on April 24 to put about 5 percent of its foreign-exchange reserves in China.
People’s Bank of China Deputy Governor Yi Gang said April 18 that the yuan’s trading band would be widened “in the near future.” The last revision, which doubled the maximum permitted divergence from the central bank’s reference rate to 1 percent, was announced on April 14, 2012. The fixing was set at a record 6.2208 per dollar on April 26, when the currency reached a 19-year high of 6.1616 in Shanghai.
The onshore spot rate appreciated 0.7 percent this month, the best performance since October. In Hong Kong’s offshore market, the currency advanced 0.6 percent, also the biggest gain in six months. It slipped 0.04 percent today to 6.1642 per dollar.
One-month implied volatility in the onshore yuan, a measure of exchange-rate swings used to price options, climbed 25 basis points, or 0.25 percentage point, to 1.46 percent this month.