Yuan Completes Fifth Quarterly Gain on Economic Recovery Signs

Sept. 30 (Bloomberg) -- China’s yuan completed its fifth straight quarter of gains on stronger central bank fixings amid signs Asia’s largest economy is recovering from a slowdown.

The People’s Bank of China raised its daily reference rate, which limits the yuan’s daily moves to 1 percent on either side, by 0.5 percent to 6.1480 this quarter. Manufacturing activity increased for q second month in September, while exports advanced for a second month in August, official data show. The yuan’s appreciation has slowed since end-June after gaining the most since 2011 in the previous three months amid a cash squeeze engineered by authorities to curb excessive lending.

“The yuan was supported by improving growth momentum,” said Andy Ji, a Singapore-based currency strategist at Commonwealth Bank of Australia. “Onshore demand for the yuan is not as strong as a quarter ago due to the liquidity crunch.”

The Chinese currency gained 0.25 percent this quarter to 6.1220 per dollar in Shanghai, after strengthening 1.2 percent in the previous three months, China Foreign Exchange Trade System prices showed. It slipped 0.03 percent today. The yuan has appreciated 1.8 percent this year, the only gainer among Asia’s 11 most-traded currencies tracked by Bloomberg.

The PBOC wants to keep the yuan “stable,” said Ji. For today, the market is watching developments in the U.S., where the House of Representatives voted 231-192 to stop many of the Affordable Care Act’s central provisions for one year, tying it to an extension of government funding through Dec. 15. Should the Senate reject the bill today, the government could be shut down from tomorrow.

PMI, Economy

China’s Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics rose to 50.2 in September from 50.1 in August, data showed today. The economy probably grew 7.7 percent in the third quarter, according to the median forecast in a Bloomberg survey this month, up from an estimate of 7.5 percent in August. Growth was 7.5 percent last quarter, the second-weakest in four years.

Twelve-month non-deliverable forwards on the yuan climbed 1.4 percent this quarter to 6.2010 per dollar in Hong Kong, according to data compiled by Bloomberg. The contracts slipped 0.01 percent today and traded at a 1.3 percent discount to the onshore spot rate.

In Hong Kong’s offshore market, the yuan rose 0.31 percent this quarter to 6.1177 per dollar, data compiled by Bloomberg show. It weakened 0.01 percent today.

One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, dropped 58 basis points, or 0.58 percentage point, this quarter to 1.23 percent. It slipped one basis point today.

Citigroup Inc. and Bank of China Ltd. announced yesterday they will participate in Shanghai’s free trade zone as the Chinese government inaugurated the experiment in more relaxed financial and investment controls.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net