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Yuan Halts Three-Day Decline on Record Fixing Before Lew Visit

Nov. 14 (Bloomberg) -- China’s yuan snapped a three-day drop as the central bank boosted the daily fixing to a record before U.S. Treasury Secretary Jacob J. Lew visits this week.

The People’s Bank of China raised the reference rate by 0.04 percent to 6.1315 per dollar, the strongest level since a peg to the greenback was removed in 2005. The yuan is allowed to diverge a maximum 1 percent from the fixing. China should speed its move to a market-determined exchange rate and open up its markets more, Lew, who arrives in China tonight, wrote in a Nov. 12 editorial in The Wall Street Journal Asia.

“Historically, we have observed the yuan fixing tends to be stronger ahead of these political events,” said Ju Wang, a foreign-exchange strategist at HSBC Holdings Plc in Hong Kong.

The yuan gained 0.01 percent to 6.0922 per dollar in Shanghai, China Foreign Exchange Trade System prices show. It reached 6.0802 on Oct. 25, the strongest level since the government unified the official and market exchange rates at the end of 1993, and has rallied 2.3 percent in 2013.

The spot traded at a 0.64 percent premium over the daily fixing, the least since Oct. 16. China will make markets “decisive” in allocating resources, according to a Nov. 12 communique from the third full meeting, or plenum, of the Communist Party’s 18th Central Committee in Beijing, which stopped short of unveiling detailed policy shifts.

The PBOC widened the yuan’s trading limit to 1 percent from 0.5 percent last year and authorities have pledged to pursue a more flexible exchange-rate policy.

Offshore Market

“The policy is still committed to further foreign-exchange liberalization and financial reforms,” said HSBC’s Wang. “Narrowing the spread between the fixing and spot rates is still a necessary preparation for the widening of the band. It’s very hard for the PBOC to widen the band when the currency is on the stronger side of the band.”

Twelve-month non-deliverable forwards advanced 0.02 percent to 6.1596 per dollar in Hong Kong, according to data compiled by Bloomberg. The contracts are trading at a 1.1 percent discount to the onshore spot rate.

In Hong Kong’s offshore market, the yuan rose 0.04 percent to 6.0771 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, was little changed at 1.64 percent.

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

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

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