China’s Yuan Forwards Reverse Decline as Economy Seen Improving

China’s yuan forwards reversed an earlier loss on speculation an improvement in the world’s second-largest economy will attract inflows.

Export and factory output growth are forecast to accelerate in August, according to the median estimates in Bloomberg surveys before government reports next week. China’s services industry grew at the fastest pace since March, data from HSBC Holdings Plc and Market Economics showed today. The People’s Bank of China weakened the yuan’s daily reference rate by 0.02 percent to 6.1729 per dollar.

Twelve-month non-deliverable forwards on the yuan advanced 0.04 percent to 6.2345 per dollar at 4:46 p.m. in Hong Kong, according to data compiled by Bloomberg. The contracts traded at a 1.8 percent discount to the onshore spot rate, which was steady at 6.1201 in Shanghai.

“Data out of China should be reasonably positive in the short term,” said Ju Wang, a Hong Kong-based analyst at HSBC. “That’s why the yuan is stable.”

Yuan forwards fell as much as 0.17 percent to 6.2475 earlier, the weakest level since Aug. 23, after U.S. House of Representatives Speaker John Boehner backed President Barack Obama’s call for action against Syria, urging lawmakers to authorize a military strike.

An official purchasing managers’ index published Sept. 1 indicated China’s factory output climbed in August by the most in 16 months.

Growth Strategy

Chinese President Xi Jinping said the government opted for slower expansion this year to allow it to adjust the structure of the nation’s economy. China would “rather bring down the growth rate to a certain extent in order to solve the fundamental problems” hindering long-run development, Xi said in a written interview yesterday with media outlets from Russia, Turkmenistan, Kazakhstan, Uzbekistan and Kyrgyzstan, according to a transcript distributed by the official Xinhua News Agency.

In Hong Kong’s offshore market, the yuan rose 0.02 percent to 6.1137 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 four basis points, or 0.04 percentage point, to 1.05 percent.

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