Yuan Extends Rebound From 18-Month Low as Weakness Seen Overdone

China’s yuan advanced, extending its rebound from an 18-month low, on speculation declines that made the currency Asia’s worst performer this year were excessive.

The yuan rose 0.32 percent, the most since March 24, to 6.2257 per dollar in Shanghai, China Foreign Exchange Trading System prices show. The currency gained 0.22 percent yesterday as local financial markets reopened after holidays on May 1 and 2. It reached 6.2676 on April 30, the weakest since October 2012 and has fallen 2.77 percent this year.

A technical indicator suggested the yuan’s recent weakness was overdone. The dollar’s relative strength index rose above 70 last week, a threshold to some traders that indicates a probable decline in the greenback.

“I don’t see a reason why the renminbi has to continue to weaken,” Suan Teck Kin, a Singapore-based economist at United Overseas Bank Ltd., said by phone. “Around this level, people are inclined to take profits” after the dollar’s advance.

The People’s Bank of China weakened the yuan’s daily fixing by 0.01 percent to 6.1565 per dollar. The onshore spot rate is trading at a 1.1 percent discount to the reference rate.

Both yuan appreciation and depreciation are “normal,” and the market shouldn’t over-interpret short-term currency fluctuations as changes in China’s exchange-rate policy, Guan Tao, head of the balance of payments department under State Administration of Foreign Exchange, wrote today in an article in Shanghai Securities News.

The offshore yuan rose 0.32 percent to 6.2256 per dollar in Hong Kong. Twelve-month non-deliverable forwards advanced 0.33 percent to 6.2110, data compiled by Bloomberg show.

One-month implied volatility in the onshore yuan, a gauge of expected exchange-rate swings used to price options, dropped 16 basis points, or 0.16 percentage point, to 1.79 percent, according to data compiled by Bloomberg.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE