Offshore Yuan Gains as PBOC Raises Fixing Before U.S. Meeting

The yuan traded in Hong Kong advanced for a third day as the central bank boosted the currency’s fixing before the start of economic talks between China and the U.S. this week.

The People’s Bank of China raised the reference rate by 0.05 percent to 6.1626 per dollar, the most in more than two weeks. In comments leading up to the July 9-10 Strategic and Economic Dialogue, U.S. Treasury Secretary Jacob J. Liew urged China to let its currency appreciate. The yuan has declined 2.4 percent against the dollar this year.

“The central bank has fixed a slightly stronger Chinese yuan given the calls from the U.S. Treasury that the currency remains undervalued,” said Roy Teo, a Singapore-based foreign-exchange strategist at ABN Amro Bank NV. “More people expect the trade balance to improve this year” as the U.S. and euro-zone economies strengthen, supporting the yuan, he said.

The offshore yuan rose 0.01 percent to 6.2036 per dollar as of 5:22 p.m. in Hong Kong, according to data compiled by Bloomberg. It climbed to 6.1988 yesterday, the strongest since April 10. In Shanghai, the currency gained 0.03 percent to 6.2022, China Foreign Exchange Trade System prices show. That’s 0.64 percent weaker than the daily fixing, within the 2 percent limit.

Exports probably rose 10.4 percent last month from a year earlier, contributing to a trade excess of $37 billion, according to the median forecast of economists surveyed by Bloomberg before data due July 10. That would be the biggest surplus since 2009.

Positive View

The yuan fixing and the onshore renminbi generally strengthen just before the annual dialogue with the U.S. and weaken after, Suan Teck Kin, a Singapore-based economist at United Overseas Bank Ltd., wrote in a research report today. Beyond this, the bank is positive on the currency in the mid- to long-term because of easing measures, he said, reiterating his forecast for the yuan to end the year at 6.15 per dollar. The government has cut reserve ratios for select banks and lowered borrowing costs through cash injections.

Twelve-month non-deliverable forwards rose 0.2 percent to 6.2470. One-month implied volatility in the onshore yuan, a gauge of expected moves in the exchange rate used to price options, dropped four basis points, or 0.04 percentage point, to 1.77 percent.

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