China’s Yuan Retreats After Biggest Weekly Gain in Three Months

The yuan retreated, after the biggest weekly gain in three months, amid speculation some investors are taking profits following a rally that drove the currency to a 19-year high.

Lawrence Summers, the former top economic adviser to U.S. President Barack Obama, said today in Hong Kong that the yuan is no longer as undervalued as it was five years ago. The currency has rallied about 17 percent since the end of 2007, according to data compiled by Bloomberg.

The yuan weakened 0.05 percent to close at 6.2192 per dollar in Shanghai, according to the China Foreign Exchange Trade System. It gained 0.23 percent last week and touched 6.2124 today, the strongest level since the government unified official and market exchange rates at the end of 1993.

“The currency market took a break after rallying in the past week,” said Patrick Cheng, a foreign-exchange analyst at Haitong International Securities Co. in Hong Kong. “People are cautious before the yuan breaks through the key 6.2 level.”

The People’s Bank of China set the yuan’s reference rate 0.03 percent stronger at 6.2695 per dollar. That’s 0.26 percent higher than the fixing on Dec. 31. The currency is allowed to trade as much as 1 percent on either side of the reference rate. Twelve-month non-deliverable forwards fell 0.12 percent to 6.2818, according to data compiled by Bloomberg.

‘Appreciation Trend’

Gross domestic product will probably increase more than 8 percent in 2013, China Securities Journal reported today, citing unidentified analysts. That’s higher than the 7.7 percent median estimate in a Bloomberg survey for growth in 2012. China’s economic recovery is a sign global demand will improve this year, Australian Treasurer Wayne Swan said yesterday before a visit to Hong Kong.

“The appreciation trend will continue,” said Suan Teck Kin, an economist at United Overseas Bank Ltd. in Singapore. “We have moved past the stage of the worst in terms of economic growth and the question is about how fast it could expand.”

China can increase by 10 times the size of two investment programs that allow foreign investors to buy securities on domestic markets, the nation’s securities regulator said.

The Renminbi Qualified Foreign Institutional Investors and the Qualified Foreign Institutional Investors programs together account for 1.5 percent to 1.6 percent of funds invested in Chinese stocks, Guo Shuqing, chairman of the China Securities Regulatory Commission, said at a conference in Hong Kong today.

Separately, the People’s Bank of China said on Jan. 11 that it will proactively prepare for the trial of its qualified domestic individual investor program, which would allow citizens to invest in Hong Kong-listed securities.

In Hong Kong’s offshore market, the yuan declined 0.06 percent to 6.1875 per dollar, snapping a five-day advance. One-month implied volatility for the yuan, a measure of expected moves in exchange rates used to price options, was unchanged at 1.75 percent, based on data compiled by Bloomberg.

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