Offshore Yuan Advances on Bets China to Keep Currency Stable

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The offshore yuan posted its biggest three-day gain since May on speculation China will refrain from weakening the currency to help exports.

The People’s Bank of China will keep the yuan “at reasonable equilibrium levels,” it said on its website Tuesday. This followed a State Council statement on trade last week that said the nation will make the currency more flexible. Exports declined in the three months through May before recovering to rise 2.1 percent in yuan terms in June.

“It’s unlikely that China will let the yuan depreciate sharply just to support exports,” said Zhou Jingtong, Beijing-based director of macroeconomic research at Bank of China Ltd. “As the nation promotes the yuan’s global use and bolsters the case for it to win reserve-currency status, it’s more likely the government would keep it relatively stable.”

The yuan in Hong Kong, which is free of the mainland’s controls, climbed 0.03 percent to 6.2170 a dollar as of 4:31 p.m. local time, data compiled by Bloomberg show. That extends its three-day advance to 0.17 percent, the most since the comparable period ended May 14, data compiled by Bloomberg show.

The onshore yuan, whose moves are limited to 2 percent on either side of a central bank fixing, closed little changed at 6.2091 in Shanghai, according to China Foreign Exchange Trade System prices. The PBOC raised its daily reference rate by 0.01 percent to 6.1150 a dollar, the strongest level since July 13. The gap between the onshore spot and the fixing was 1.5 percent.

China won’t use yuan depreciation as a key tool to drive exports, according to a July 28 research note by Citigroup Inc. The currency retained fifth place in global payments in June with a 2.09 percent market share, the Society for Worldwide Interbank Financial Telecommunications said in a statement Wednesday.

It is “critical” for China to adopt a flexible, market-based exchange rate, and the nation should take steps to raise consumption and open up the financial system, the International Monetary Fund said in an annual report Tuesday. China has kept the yuan in a narrow band of around 6.2 to the dollar since the end of March amid efforts to persuade the IMF to grant it reserve-currency status at a review in November.

— With assistance by Tian Chen

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