China’s yuan rose to within 0.2 percent of a 19-year high on speculation capital inflows will spur appreciation.
China may face “large scale” inflows of speculative funds in the next few years, which will drive asset prices higher and push up consumer prices, Su Ming, deputy head of the Ministry of Finance’s research institute for fiscal science, said in an article published in today’s People’s Daily newspaper. New-home prices rose last month in 68 of 70 cities tracked by the government, data showed May 18.
“When the property outlook is improving, more people tend to bring capital into China,” said Jonathan Cavenagh, a strategist at Westpac Banking Corp. in Singapore. “Authorities see that as a risk, creating a stronger exchange-rate environment than what they are happy with.”
The yuan rose 0.05 percent to 6.1389 per dollar in Shanghai, according to China Foreign Exchange Trade System prices. It touched 6.1307 on May 9, the strongest level since the government unified official and market exchange rates at the end of 1993. The currency was 0.99 percent stronger than the central bank’s reference rate, which was little changed today at 6.1998.
The spot rate is allowed to diverge from the fixing by a maximum 1 percent and China intervenes in the currency market to prevent a breach of the trading band. The nation’s foreign-exchange reserves, the world’s largest, climbed $131 billion in the first quarter to a record $3.44 trillion.
The jump in the reserves is large enough for China to be judged a currency manipulator by the U.S. Treasury, Tim Condon, Singapore-based head of Asia research at ING Groep NV, wrote in a note today. The nation faces “relatively large pressures” from capital inflows and yuan appreciation, Ji Zhihong, an official at the research bureau of the People’s Bank of China, was quoted as saying in the People’s Daily.
In Hong Kong, the yuan rose 0.15 percent to 6.1352 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards gained 0.2 percent to 6.2295, a 1.5 percent discount to the onshore exchange rate.
One-month implied volatility in the yuan, a measure of expected moves in the exchange rate used to price options, held at 1.805 percent.