Yuan Rises to 19-Year High as Central Bank Sets Record Fixing

China’s yuan climbed to a 19-year high after the central bank set a record reference rate for the currency amid speculation of rising capital inflows.

The People’s Bank of China raised the fixing by 0.15 percent, the biggest increase since Feb. 8, to 6.2548 per dollar. The nation’s export growth fell short of estimates in March for the first time in four months, while imports increased at a faster pace than predicted, leaving an unexpected trade deficit of $880 million, official data showed today.

“China is still seeing capital inflows and therefore there is a lot of demand for the renminbi,” said Khoon Goh, a senior strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “My guess is that the PBOC is trying to accommodate some of the onshore demand for the renminbi by allowing the fix to be stronger.”

The yuan gained 0.14 percent to 6.1939 per dollar in Shanghai, prices from the China Foreign Exchange Trade System show. It touched 6.1923 earlier, the strongest level since the government unified official and market rates at the end of 1993. China limits the currency’s movement to 1 percent on either side of the daily fixing.

Shipments abroad increased 10 percent from a year earlier, the customs administration said today in Beijing. That compares with 21.8 percent growth in February and the 11.7 percent median estimate in a Bloomberg News survey of 36 economists. Imports rose 14.1 percent, beating the 6 percent advance predicted.

Australian Dollar

“The overall trade numbers should not be viewed as negative because the deficit is coming from the surprise on the import side,” said Ju Wang, a senior foreign-exchange strategist at HSBC Holdings Plc in Hong Kong. “It could just be a correction of under-reporting in January and February. It suggests economic growth is not as weak as expected.”

HSBC will start direct trading between the yuan and Australian dollar today, joining two other banks in getting approvals from China as market makers. The People’s Bank of China has already cleared Australia & New Zealand Banking Group Ltd. and Westpac Banking Corp. for the trades, Australian Prime Minister Julia Gillard announced April 8 in Shanghai during an official visit.

The Australian dollar becomes the third major currency allowed to have direct trading links with the yuan after the greenback and Japan’s yen. The PBOC announces a daily reference rate for the yuan against the Australian currency around 9:15 a.m. in Shanghai each day. The rate was set at 6.54 per Australian dollar today, compare with 6.5314 yesterday according to the China Foreign Exchange Trade System.

In Hong Kong’s offshore market, China’s currency gained 0.10 percent to 6.1865 per U.S. dollar, data compiled by Bloomberg show. Twelve-month non-deliverable forwards advanced 0.29 percent to 6.2596 in Hong Kong. The contracts traded at a 1 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, increased nine basis points, or 0.09 percentage point, to 1.3950 percent.

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