Yuan Rises to 19-Year High, Tests Upper Limit of PBOC Range
China’s yuan rose beyond 6.28 per dollar for the first time in 19 years, moving to within 0.01 percent of the upper end of its permitted trading range, amid speculation policy makers will act to revive economic growth.
The yuan gained 0.1 percent to close at 6.2770 per dollar in Shanghai, according to the China Foreign Exchange Trade System. Today’s high of 6.2761 was the strongest level since 1993 and a 0.99 percent premium to the central bank’s reference rate, which was boosted 0.09 percent to 6.3391. China’s currency can trade as much as 1 percent on either side of the daily fixing.
China asked local authorities to spend more on public transport to ease congestion and reduce pollution, according to a statement posted on the central government’s website yesterday after a State Council meeting presided by Premier Wen Jiabao. The Chinese Communist Party will hold a congress starting Nov. 8 at which new leaders will be named ahead of a once-a-decade handover of power.
“Investors hold strong expectations for China to roll out more stimulus measures as political issues have been settled,” said Kenix Lai, a Hong Kong-based foreign-exchange analyst at Bank of East Asia Ltd. (23) “It’s quite surprising to see the yuan rising through key levels as export growth has yet to regain strong momentum.”
The Dollar Index (DXY), which tracks the greenback against the currencies of six U.S. trading partners, has advanced 0.8 percent this week and touched a one-month high today amid concern Europe’s debt crisis will worsen. Standard & Poor’s yesterday cut Spain’s debt rating to one level above junk, citing mounting economic and political risks as the government considers a second bailout.
A report on Oct. 13 may show China’s overseas sales climbed 5.7 percent from a year earlier in September, compared with a 2.7 percent increase the previous month, according to the median estimate of economists in a Bloomberg News survey.
“We find it unusual that the fixing has been strengthened at a time when the dollar is doing well in global markets,” said Dariusz Kowalczyk, Hong Kong-based strategist at Credit Agricole CIB. “It’s inconsistent with China’ attempts to weaken the currency in support of exporters.”
In Hong Kong’s offshore market, the yuan climbed 0.2 percent to 6.2800 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards gained 0.3 percent, the most in four weeks, to 6.3758. The contracts traded at a 1.5 percent discount to the onshore spot rate.
One-month implied volatility, a measure of exchange-rate swings used to price options, increased five basis points to 1.25 percent.
The Chinese currency has advanced 0.27 percent against the dollar so far in 2012. The median estimate of analysts surveyed by Bloomberg is for the currency to have an annual decline of 0.25 percent to 6.31 per dollar.
An appreciating yuan may reflect China’s desire for U.S. President Barack Obama to win another four-year term in a November election, according to Kowalczyk.
While the Obama administration has said it will keep pressing China to strengthen the yuan, it declined to label the world’s second-largest economy a “currency manipulator” in a semi-annual report to Congress in May. Romney said he would on his first day in the White House tell the Treasury Department to list China as a currency manipulator, paving the way for more duties on Chinese imports.
“It would be in Beijing’s interest to see Obama re- elected, given Romney’s tougher stance on China,” said Kowalczyk. “The PBOC may be trying to help Obama to make the argument in the next debate that he has succeeded to pressure Beijing into appreciating the yuan.”
To contact the reporter on this story: Fion Li in Hong Kong at firstname.lastname@example.org