Yuan forwards climbed to the strongest level in seven weeks and the onshore spot rate touched a 19-year high after the central bank raised its reference rate for the fourth day in a row and exports beat forecasts.
Overseas shipments rose 5.1 percent from a year earlier in July after contracting 3.1 percent in June, official data showed today. That exceeded the median estimate of 2 percent growth in a Bloomberg survey. Imports advanced 10.9 percent, higher than the forecast of a 1 percent gain. The People’s Bank of China raised the daily fixing 0.04 percent to 6.1703 per dollar, the strongest since July 24.
“We are seeing more signs that China’s economy is stabilizing, and that’s positive for the yuan and its global usage,” said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. “Sentiment has improved on speculation that the leadership will roll out measures to support growth.”
Twelve-month non-deliverable forwards rose 0.2 percent to 6.2644 per dollar as of 5:22 p.m. in Hong Kong, the strongest since June 18, according to data compiled by Bloomberg. The contracts traded at a 2.3 percent discount to the onshore spot, which closed 0.05 percent lower at 6.1225 in Shanghai, China Foreign Exchange Trade System prices show. The onshore currency earlier touched 6.1143, the highest since the government unified the official and market exchange rates at the end of 1993.
Drag on Exports
The yuan has gained 1.8 percent against the dollar this year, making it the best performer among 24 emerging-market currencies tracked by Bloomberg. The average yield on Dim Sum bonds fell to the lowest since June 20 this week on the yuan’s rally, a Deutsche Bank AG and Standard & Poor’s index shows. The nation’s foreign-exchange position may resume “moderate” growth, China Securities Journal reported, citing people it didn’t identify.
An “overly strong” yuan, especially against key Asian currencies, remains a drag on China’s trade competitiveness, Liu Li-gang and Hao Zhou, economists at Australia & New Zealand Banking Group Ltd., wrote in a note today. The yuan’s strength could be a signal that the PBOC wants to widen the currency’s trading band, they wrote.
In Hong Kong’s offshore market, the yuan advanced 0.05 percent to 6.1150, after touching a record 6.1127. One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, was steady at 1.23 percent.
“Trade data for July comes in much stronger than expected,” Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB, wrote in a note today. “All this confirms our view that the economy has bottomed out and will re-accelerate in the second half. We’d like to call the end to worries over China for this year.”