China’s Yuan Strengthens for Ninth Week on Inflow Speculation

China’s yuan rose for a ninth week, the longest winning streak since November, on speculation capital inflows will support the currency.

The People’s Bank of China cut the daily fixing by 0.11 percent to 6.2152 per dollar today after raising it by 0.2 percent yesterday. Stocks rose the most in a week today after valuations on the benchmark index dropped to a four-month low, while the Federal Reserve said May 1 it is prepared to increase the monthly pace of bond buying above $85 billion to guard against any slump in growth or employment. Chinese markets were closed on the first three days of the week for holidays.

“The yuan is likely to remain strong as capital inflows continue,” said Stella Lee, president of Success Wealth Management Ltd. in Hong Kong.

The yuan advanced 0.15 percent this week to 6.1556 per dollar and was little changed today, according to the China Foreign Exchange Trade System. The currency touched 6.1537 yesterday, the strongest level since the government unified the official and market exchange rates at the end of 1993. The spot rate in Shanghai is allowed to diverge a maximum 1 percent from the daily fixing.

The nation’s financial and capital-account surplus surged in the first quarter, data showed last week.

One-month implied volatility in the yuan, a measure of exchange-rate swings used to price options, jumped 21 basis points, or 0.21 percentage point, to 1.64 percent this week. It fell three basis points today.

Outlook ’Exaggerated’

Growth in China’s services output slowed in April, an official Purchasing Managers’ Index showed today, after reports this week indicated manufacturing is also losing momentum.

The yuan’s appreciation prospects may have been exaggerated and there could be “periodic” depreciation in the future, China Securities Journal reported today, citing analysts including Tan Yaling, the head of China Forex Investment Research Institute, a private research body. PBOC’s “more aggressive” management of the yuan reference rate has driven yuan gains, the newspaper cited Chinese Academy of Social Sciences researcher Liu Yuhui as saying.

In Hong Kong’s offshore market, the yuan gained 0.19 percent this week and 0.04 percent today to 6.1549 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards rose 0.22 percent this week and were little changed today at 6.2240, trading at a 1.1 percent discount to the spot rate in Shanghai.

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