Yuan Trades Near Two-Week High as Recovery Signs Lure Investors

The yuan traded near a two-week high as signs of a recovery in the world’s second-largest economy sparked speculation global funds will increase holdings of China’s assets.

The yuan has gained 1.8 percent this year, the best showing among 24 emerging-market currencies tracked by Bloomberg. The Bloomberg-JPMorgan Asia Dollar Index has fallen 2.7 percent since May 22, when the Federal Reserve first said it may cut its $85 billion monthly stimulus. Investors who want to “sit out” the selloff should buy the yuan for its stability, Manpreet Gill, senior investment strategist at Standard Chartered Wealth Management Group, said in an interview today.

“The yuan is a prime candidate for safe-haven status as the Federal Reserve tapers its asset purchases,” said Dariusz Kowalczyk, a Credit Agricole CIB strategist in Hong Kong. “China doesn’t rely on U.S. liquidity for its growth to a significant degree and is capable of achieving strong expansion without it.”

The yuan was little changed at 6.1206 per dollar today in Shanghai, China Foreign Exchange Trade System prices show. The currency touched 6.1156 yesterday, the strongest level since Aug. 19. The People’s Bank of China weakened the yuan’s daily reference rate by 0.03 percent to 6.1718 per dollar. The spot rate can diverge a maximum 1 percent from the fixing.

Improving Economy

An official report released over the weekend showed a gauge of manufacturing rose to a 16-month high of 51 in August, while data last month showed a rebound in trade and services in July. Goldman Sachs Group Inc. today raised its estimate for China’s 2013 growth to 7.6 percent from 7.4 percent, after a similar revision by JPMorgan Chase & Co. on Sept. 1.

Confidence in China is increasing and the nation can achieve its economic goals for 2013, Premier Li Keqiang said in a speech today at the China-ASEAN Expo in Nanning. The economy has “maintained stable development” since the first half, he said.

Twelve-month non-deliverable forwards on the yuan fell 0.07 percent to 6.2370 per dollar in Hong Kong, according to data compiled by Bloomberg. The contracts, which gained 1 percent in August, touched 6.2300 yesterday, the strongest level since May 29. The forwards traded at a 1.9 percent discount to the onshore spot rate.

In Hong Kong’s offshore market, the yuan slipped 0.03 percent to 6.1151 per dollar, according to data compiled by Bloomberg. One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, fell one basis point, or 0.01 percentage point, to 1.08 percent.

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