Offshore Yuan Gains as Property Market Signals Confidence Return

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The offshore yuan traded freely in Hong Kong strengthened to a two-week high as official Chinese data signaled a gradual return of confidence to the property market.

The number of cities where home prices fell declined for the third straight month in May and more recorded gains following the removal of property curbs and a lowering of interest rates, show figures released Thursday. The yuan was helped also as a dollar gauge slid to the lowest level in a month Thursday after Federal Reserve Chair Janet Yellen said increases in U.S. borrowing costs will be gradual.

“The property market recovery is an important and clear sign that China’s economic slowdown has bottomed out,” said Liu Xuezhi, a Shanghai-based macro-economy analyst at Bank of Communications Co. “The Fed comments make the dollar seem unattractive, so less capital will flow out of China and the yuan will strengthen.”

The offshore yuan rose 0.06 percent to 6.2053 a dollar as of 4:49 p.m. in Hong Kong, according to data compiled by Bloomberg. It earlier climbed to 6.2027, the highest since June 4. The People’s Bank of China raised its daily reference rate, which limits mainland trading to 2 percent on either side, by 0.05 percent to 6.1126, the strongest since May 20.

The onshore rate gained 0.03 percent to close at 6.2075 a dollar, according to China Foreign Exchange Trade System prices. The gap between the onshore yuan and the fixing was 1.6 percent.

Property Prices

China eased mortgage policies and down-payment requirements for some homebuyers at the end of March, adding to measures since September to aid an industry that has been weighing on economic growth. New-home prices declined in May in 41 of the 70 cities tracked by the National Bureau of Statistics, compared with declines in 47 in April, according to data on Thursday. They rose in 20 cities, two more than in April, led by gains in the first-tier hubs, including Shanghai and Beijing.

Local banks bought a net 24.5 billion yuan ($3.9 billion) of foreign exchange for their clients in May, the State Administration of Foreign Exchange in a statement on its website Thursday.

New forecasts issued by the Federal Open Market Committee imply two quarter-point rate rises this year and a slower pace of increases in 2016. Yellen stressed that the date of the first rate increase is less important than the trajectory of subsequent ones.

— With assistance by Tian Chen

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