Offshore Yuan Volatility Climbs as Manufacturing Gauge Declines

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A measure of expected swings in China’s offshore yuan rose to a three-week high as a private factory gauge sank to the lowest level since 2013, adding to signs that the economy is slowing.

The final reading of a Purchasing Managers’ Index released Monday by Caixin Media and Markit Economics slipped to 47.8 in July, missing all analysts’ estimates in a Bloomberg survey and coming in below the 50 mark that separates contraction and expansion. The report follows data released Saturday showing an official factory gauge declined to a five-month low. The central bank has cut interest rates four times since November to help meet the government’s 7 percent annual goal.

“China’s economic fundamentals are still weak and more monetary easing is needed in the second half,” said Zhu Lixu, a Shanghai-based analyst at Xiangcai Securities Co. “The economy is putting depreciation pressure on the yuan, though China may want to keep the currency stable as it seeks to win reserve-currency status.”

The offshore yuan’s one-month implied volatility, which is used to price options, rose 5 basis points to 1.97 percent as of 5:01 p.m. in Hong Kong, according to data compiled by Bloomberg.

The onshore yuan, whose moves are limited to 2 percent on either side of a central bank fixing, closed unchanged at 6.2097 a dollar, according to China Foreign Exchange Trade System prices. The currency in Hong Kong, which trades freely, climbed 0.04 percent to 6.2186, data compiled by Bloomberg show.

The People’s Bank of China set its daily reference rate at 6.1169 a dollar, little changed from Friday. The gap between the onshore spot and the fixing was 1.5 percent.

Asia’s largest economy should prove resilient enough to withstand the recent stock-market rout, and government intervention to stem declines shouldn’t “unduly derail” the yuan’s prospects of being included in the International Monetary Fund’s Special Drawing Rights basket, Managing Director Christine Lagarde said last week.

— With assistance by Tian Chen

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