Yuan Forwards Rebound as Fixing Raised for First Time in a Week

Yuan forwards rebounded from a 15-week low as the central bank strengthened the daily fixing for the first time in a week amid a cash crunch in the nation’s financial system.

The People’s Bank of China raised the reference rate 0.06 percent to 6.1767 per dollar, ending a five-day streak in which it weakened the fixing by 0.34 percent. Benchmark money-market rates extended their retreat from record highs, while remaining higher than monthly averages. Goldman Sachs Group Inc. cut its 2013 growth projection to 7.4 percent from 7.8 percent, citing the recent tightening of financial conditions.

“Today is a rebound rather than a change of direction for the yuan,” said Kenix Lai, a Hong Kong-based foreign-exchange analyst at Bank of East Asia Ltd. “Downside pressure remains as onshore liquidity is tight and there’s concern over growth.”

Twelve-month non-deliverable forwards rose 0.23 percent to 6.3010 per dollar as of 4:57 p.m. in Hong Kong, according to data compiled by Bloomberg. The contracts touched 6.3190 per dollar yesterday, the weakest since March 7. They traded at a 2.5 percent discount to the yuan in Shanghai, which was little changed at 6.1453, China Foreign Exchange Trade System prices showed. The onshore spot rate is allowed to diverge from the reference by a maximum of 1 percent.

Long yuan positions will come under stress in coming weeks, Commonwealth Bank of Australia strategists Andy Ji in Singapore and Joseph Capurso in Sydney wrote in a research note yesterday. That’s because of the strength of the dollar, growth concerns stemming from China’s ongoing credit tightening and a possible widening of the daily trading band, the strategists wrote. A long position is a bet a currency or security will rise in value.

In Hong Kong’s offshore market, the yuan slipped 0.02 percent to 6.1417 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, was steady at 1.94 percent, compared with yesterday’s 1.95 percent.

China’s liquidity risks are controllable and the central bank will closely monitor rates going forward, Ling Tao, deputy director of the PBOC’s Shanghai branch, said at a briefing in Shanghai today. The central bank will keep money-market rates at a reasonable level and seasonal forces that have driven them up will fade, the official said.

Before it's here, it's on the Bloomberg Terminal.