Yuan Gains Most in 3 Weeks as Central Bank Sets Record Fixing

China’s yuan advanced the most in three weeks after the People’s Bank of China raised its reference rate to a record.

The currency gained 0.09 percent, the most since May 27, to 6.1250 per dollar in Shanghai, according to China Foreign Exchange Trade System prices. The central bank will not intentionally depreciate the yuan to boost competitiveness, People’s Bank of China Governor Zhou Xiaochuan was cited as saying by China Central Television this month.

“We have another record high fixing by the PBOC,” said Khoon Goh, a senior strategist at Australian & New Zealand Banking Group Ltd. “As a result, the yuan is stronger. But broadly, while we did see the yuan higher, the prevailing sentiment is that people want to buy dollars.”

The central bank boosted the yuan’s reference rate by 0.01 percent to an all-time high of 6.15980 today. The currency is allowed to trade a maximum 1 percent either side of the fixing.

Yuan positions at domestic lenders from foreign-exchange transactions, a gauge of capital inflows, recorded their smallest gain since November last month. Investors pulled $2.1 billion from Asia in the week through June 12, the most since August 2011, Citigroup Inc. analyst Markus Rosgen wrote last week, citing EPFR Global.

China’s industrial output growth slowed to 9.2 percent from a year earlier in May, less than the 9.4 percent forecast in a Bloomberg survey of economists. Exports rose the least in 10 months and factory-gate prices fell for a 15th month, official figures released this month show.

Capital Flows

“Investors are pulling back, softening capital inflows, and not only the yuan but other Asian currencies are weakening as well,” said Ho Woei Chen, a Singapore-based economist at United Overseas Bank Ltd. “The pace of yuan gains could slow or it could depreciate. But, for the year, we still see appreciation possible.”

China’s macroeconomy can’t rely on policy loosening and stimulus for continued recovery, Shanghai Securities News reported today, citing a research report released by Renmin University. The yuan’s cross-border use should be expanded beyond trade to investment and financing, the newspaper reported, citing Xing Yujing, secretary general of the People’s Bank of China’s monetary policy committee.

Twelve-month non-deliverable forwards strengthened 0.2 percent to 6.2566 per dollar in Hong Kong, according to data compiled by Bloomberg. The contracts traded at a 2.1 percent discount to the onshore spot.

In Hong Kong’s offshore market, the yuan advanced 0.1 percent today to 6.1279 per dollar, according to data compiled by Bloomberg.

One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, lost six basis points to 1.73 percent today.

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