Yuan Approaches 19-Year High as Central Bank Bolsters Fixing

The yuan traded near a 19-year high as the People’s Bank of China boosted the currency’s reference rate to the strongest level in more than two months amid optimism the economy is improving.

The central bank raised the daily fixing 0.03 percent to 6.2711 per dollar today, the highest level since Jan. 15. A preliminary reading for Chinese manufacturing this month was 51.7, according to a report yesterday from HSBC Holdings Plc and Markit Economics. That compares with the median estimate of 50.8 in a Bloomberg survey and a final reading of 50.4 in February. Premier Li Keqiang took office last week.

“There’s an increase in yuan demand on expectations the new leadership will implement policies to safeguard growth and allow more foreign investment in domestic markets,” said Banny Lam, co-head of research at Agricultural Bank of China International Securities Ltd., a subsidiary of the nation’s third-largest bank. Lam expects the yuan to gain 2 percent this year, after a 1 percent advance in 2012.

The yuan rose 0.03 percent to close at 6.2122 per dollar in Shanghai, prices from China Foreign Exchange Trade System show. It touched 6.2113 on March 20, the strongest level since the government unified the official and market rates at the end of 1993. The currency advanced for a fourth week with a 0.02 percent gain and traded at a 0.95 percent premium to the fixing, near its 1 percent daily trading limit.

The yuan is “moderately undervalued,” Markus Rodlauer, International Monetary Fund’s China mission chief, said yesterday in a Bloomberg TV interview.

Offshore Market

China and Brazil have reached consensus on 190 billion yuan ($31 billion) of currency swaps, Foreign Ministry spokesman Hong Lei said in Beijing today. A deal on the swap will be signed “soon,” Hong said.

In Hong Kong’s offshore market, the Chinese currency was steady at 6.2060 per dollar, data compiled by Bloomberg show. It has dropped 0.06 percent since March 15, snapping a three-week advance. Twelve-month non-deliverable forwards climbed 0.05 percent today to 6.3060, paring a weekly loss to 0.06 percent. The contracts traded at a 1.5 percent discount to the spot rate in Shanghai.

One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, gained three basis points, or 0.03 percentage point, to 1.25 percent this week.

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