Yuan Forwards Completes Biggest Weekly Gain Since 2011 on PMIs

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Yuan forwards posted the biggest weekly advance in more than three years after the economy showed signs of picking up and on speculation China wants a stable exchange rate as it pushes ahead with reforms.

A Purchasing Managers’ Index of China’s services industry rose to 52.3 in March, the highest this year, HSBC Holdings Plc and Markit Economics reported Friday. That followed the official PMI for manufacturing on Wednesday that beat estimates. China will revamp its foreign-exchange rules “relatively radically” this year, People’s Bank of China Governor Zhou Xiaochuan said March 29, after calling for the International Monetary Fund to add the yuan to its basket of four reserve currencies.

“Data that showed no further deterioration in the economy offered fundamental support to the currency,” said Li Miaoxian, a Beijing-based economist at Bocom International Holdings Co. “More importantly, the market has formed an expectation that the Chinese government will do a lot of things this year on the capital-account opening front, and the authorities will need the exchange rate to remain relatively stable to achieve the goal.”

Twelve-month yuan non-deliverable forwards surged 0.96 percent this week to 6.3170 a dollar as of 5:10 p.m. in Hong Kong, data compiled by Bloomberg show. The contracts, which rose 0.06 percent Friday, touched 6.3145 earlier, the strongest level since Jan. 23.

‘Necessary Reforms’

The yuan advanced 0.35 percent from March 27 and 0.03 percent on Friday to close at 6.1950 a dollar in Shanghai, China Foreign Exchange Trade System prices show. The currency has rallied 1.3 percent in the month through Friday. The PBOC set the daily reference rate at 6.1348 a dollar, 0.08 percent stronger than on Thursday and March 27. The gap between the onshore spot rate and the fixing was 0.98 percent, within the 2 percent limit.

China must implement “necessary reforms” before the yuan can qualify to be included in the IMF’s basket of reserve currencies, U.S. Treasury Secretary Jacob J. Lew said in a speech in San Francisco on Tuesday. Lew urged China to ease restrictions on the flow of capital and the setting of interest rates to ensure the yuan is increasingly used as an international currency.

In Hong Kong’s offshore market, the yuan strengthened 0.16 percent this week to 6.2019 a dollar, according to data compiled by Bloomberg. The currency rose 0.05 percent on Friday.

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