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Yuan Climbs to 20-Year High as Manufacturing Exceeds Forecasts

Oct. 24 (Bloomberg) -- China’s yuan touched a 20-year high as a report showed manufacturing strengthened by more than anticipated this month, signaling a recovery in Asia’s largest economy is gaining momentum.

The preliminary 50.9 reading for a Purchasing Managers’ Index released today by HSBC Holdings Plc and Markit Economics is the highest level since March and compares with a 50.4 median estimate from analysts surveyed by Bloomberg News. Readings above 50 indicate expansion. The People’s Bank of China set the yuan’s daily fixing at 6.1335 per dollar today, weaker than a record-high of 6.1330 yesterday. The currency is allowed to diverge a maximum 1 percent from the reference rate.

“We’re still in a reasonably positive environment for the yuan,” said Jonathan Cavenagh, a currency strategist in Singapore at Westpac Banking Corp. “You have PMI printing stronger than expected.”

The yuan advanced 0.02 percent to close at 6.0820 per dollar in Shanghai, China Foreign Exchange Trade System prices show. The currency touched 6.0808 earlier, the strongest level since the government unified the official and market exchange rates at the end of 1993.

Twelve-month non-deliverable forwards slipped 0.03 percent to 6.1519 per dollar in Hong Kong, a 1.1 percent discount to the onshore spot rate, data compiled by Bloomberg show.

‘Correction Risk’

The Shanghai Composite Index slid 0.9 percent today and China’s one-year interest-rate swap jumped the most in two months after the People’s Bank of China refrained from conducting reverse-repurchase auctions for a third straight time.

“There is a risk the market starts to get jittery given how long the market is on the yuan,” Westpac’s Cavenagh said. “Everyone is trying to figure out if there’s a shift in policy, or is it more of a seasonality issue around the month-end. There’s a risk of a correction at some stage. It’s an opportunity to buy on dips.”

Hong Kong’s government has discussed relaxing the yuan conversion limit on local permanent residents with the People’s Bank of China today, K.C. Chan, the city’s financial services secretary, said at a briefing in Beijing. Progress has been made and the announcement could come in the near future, Hong Kong Chief Executive Leung Chun-ying said at the same event. The Hong Kong Monetary Authority proposed to the PBOC last week that the 20,000 yuan ($3,289) limit should be waived.

In Hong Kong’s offshore market, the yuan gained 0.1 percent to 6.0777 per dollar, according to data compiled by Bloomberg. It touched 6.0775 earlier, the strongest level since August 2010.

One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, increased one basis point, or 0.01 percentage point, to 1.26 percent.

To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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