Yuan Gains as State-Run Banks Sell Dollars, Stimulus Bets Recede

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China’s yuan advanced for a second day on speculation state-owned banks sold dollars to support the local currency and as concerns the authorities will implement quantitative easing receded.

State-run banks sold the greenback to bolster the yuan, two traders said, asking not to be named. The People’s Bank of China has sufficient tools to keep cash supply at reasonable levels and doesn’t need to inject funds by purchasing local government debt, the central bank research bureau’s Ma Jun was cited as saying by China Business News. The monetary authority raised the yuan’s daily reference rate for the fifth day, the longest stretch of increases since December.

The yuan strengthened 0.1 percent to 6.1997 a dollar in Shanghai, China Foreign Exchange Trade System prices show. In Hong Kong’s offshore market, the currency rose 0.04 percent to 6.2023 as of 5:45 p.m., according to data compiled by Bloomberg.

“The market is less concerned that China will start quantitative easing in the near-term after Ma Jun said it was not essential,” said Banny Lam, co-head of research at Agricultural Bank of China International Securities Co. in Hong Kong. “The central bank set a strong fixing as it wants to signal to the market that it will support the yuan and keep it stable in the long-run.”

The PBOC raised the yuan’s fixing by 0.07 percent to 6.1169 a dollar, the strongest level since Dec. 17. The gap between the onshore yuan and the fixing was 1.35 percent, within the 2 percent limit.

Bond Purchases

Regional authorities will directly sell more than 1.7 trillion yuan ($274 billion) of bonds this year, a four-fold jump from 2014, to help convert their high-cost corporate notes into cheaper and more transparent borrowing. China is discussing unconventional policies including buying local government debts directly to revive the economy, Market News International reported Monday, citing people it didn’t identify.

The Bloomberg Dollar Spot Index has slipped for the previous five days before the Federal Open Market Committee announces a policy decision Wednesday, and as the U.S. economy is forecast to have grown at the slowest pace in a year last quarter. The gauge is on course for its first monthly decline since June amid speculation the Federal Reserve will delay raising interest rates.

— With assistance by Tian Chen

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