Offshore Yuan Completes Weekly Gain on Li Support, Stimulus Bets

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The offshore yuan completed the biggest weekly advance in a month as Chinese authorities pledged support for the currency and a slowing economy spurred speculation the government will take steps to boost growth.

The nation can’t rely on a declining yuan to help exports and doesn’t want further devaluation, Premier Li Keqiang said in an interview with the Financial Times published this week. China has taken “very positive steps” to support its efforts to include the yuan in the International Monetary Fund’s Special Drawing Rights basket of reserve currencies, Managing Director Christine Lagarde said in Washington.

“Speculation that China will stabilize the yuan for SDR inclusion will support the currency throughout this year,” said Ho Man Chun, a strategist at Bank of Communications Co.’s Hong Kong branch. “The comments that further devaluation is not desired has also fueled optimism, giving the currency a short-term boost.”

The offshore yuan advanced 0.42 percent this week to 6.1923 a dollar as of 5:44 p.m. in Hong Kong, according to data compiled by Bloomberg. It earlier climbed to a four-month high of 6.1863. In Shanghai, the currency rose 0.18 percent from April 10 to close at 6.1978, China Foreign Exchange Trade System prices show.

China has committed to changing its financial sector and ensuring the yuan is “freely usable,” Lagarde said. The positive steps it has taken include plans to start an insurance system for bank deposits, interest-rate liberalization and opening up of the capital account, she added. In the last five-yearly review in 2010, the IMF decided not to include the yuan because it wasn’t freely usable. The next meeting will be held later this year.

Onshore Fixing

The People’s Bank of China raised the onshore yuan’s daily reference rate by 0.17 percent this week and 0.06 percent Friday to 6.1267 a dollar. That’s the strongest level since Feb. 6. The gap between the onshore spot rate and the fixing was 1.16 percent, within the 2 percent limit.

China’s intervention in foreign-exchange markets has “fallen significantly” in the past year, U.S. Treasury Secretary Jacob J. Lew said in prepared testimony to the Senate Finance Committee Thursday. The Obama administration plans to continue encouraging the world’s second-largest economy to move toward a market-determined exchange rate, Lew said.

— With assistance by Tian Chen

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