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Yuan Forwards Gain to Record as Fixing Raised Before Biden Visit

Yuan one-month forwards touched the strongest level in at least 15 years as China’s central bank raised the currency’s reference rate to a record before U.S. Vice President Joseph Biden visits Beijing.

The People’s Bank of China boosted the daily fixing by 0.08 percent to 6.1300 per dollar, the highest since a peg to the greenback was removed in 2005. The one-month non-deliverable contracts rose 0.04 percent to 6.1259 as of 4:50 p.m. in Hong Kong, after touching 6.1240, the strongest level in data compiled by Bloomberg going back to 1998.

Biden departs from Tokyo today to meet with Chinese officials over a new air defense zone introduced by China over disputed islands with Japan. The vice president said yesterday the U.S. is “deeply concerned by the attempt to unilaterally change the status quo in the East China Sea.” A report from the Society for Worldwide Interbank Financial Telecommunication yesterday showed the yuan overtook the euro to become the second-most used currency in global trade finance.

“The fixing is in line with China’s efforts to promote the yuan as a trade-settlement currency, which has been making progress,” said Irene Cheung, a Singapore-based currency strategist at Australia & New Zealand Banking Group Ltd. That also coincided with “Biden’s visit today and China will continue to allow the yuan to appreciate,” she said.

Yuan Finance

China’s currency accounted for 8.66 percent of letters of credit and collections used in global trade finance in October, second only to the dollar and surpassing the euro’s 6.64 percent share, the Brussels-based Swift said in a statement.

The onshore yuan was little changed at 6.0916 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The spot rate was 0.63 percent stronger than the reference rate, compared with the maximum allowed divergence of 1 percent. The yuan will appreciate to 6.07 per dollar by year-end, ANZ’s Cheung forecast.

In Hong Kong’s offshore market, the yuan was steady at 6.0845 per dollar, data compiled by Bloomberg show. Twelve-month non-deliverable forwards rose 0.03 percent to 6.1515, a 1 percent discount to the onshore spot rate.

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 1.62 percent.

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