Yuan Rises a Second Day on Easing Cash Crunch, Manufacturing

The yuan advanced for a second day after manufacturing expanded and a Chinese regulator said banks have enough cash to avert any disruption to their operations.

The Purchasing Managers’ Index was at 50.1 in June, official data showed today, matching the median forecast of 33 analysts surveyed by Bloomberg News. Readings above 50 signal expansion. Banks had about 1.5 trillion yuan ($244.4 billion) of cash reserves as of June 28 that could be used for payment and settlement needs, more than double what is usually required, Shang Fulin, chairman of the China Banking Regulatory Commission, said in a June 29 speech in Shanghai.

“Manufacturing still does remain in expansion,” said Jonathan Cavenagh, a strategist at Westpac Banking Corp. in Singapore. “That’s been a bit of relief for the market.”

The yuan rose 0.08 percent to 6.1327 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The exchange rate reached 6.1285 earlier, the strongest level since June 20. The yuan lost 0.05 percent last month, paring its advance for the second quarter to 1.19 percent.

The People’s Bank of China set the yuan’s reference rate 0.03 percent weaker at 6.1805 today. The onshore spot rate is allowed to diverge from the fixing by a maximum of 1 percent.

The seven-day repurchase rate, a gauge of interbank funding availability, fell 71 basis points to 5.45 percent, according to a weighted average compiled by the National Interbank Funding Center. It touched a record high of 12.45 percent on June 20 and has averaged 3.62 percent in one year.

‘Lowering Stress’

“As those interbank funding costs have come down, it’s been lowering the stress in the Chinese banking system,” Cavenagh said. “The market can take some comfort from the fact that the Chinese authorities are starting to talk more about this issue.”

Twelve-month non-deliverable forwards were little changed at 6.2886 per dollar in Hong Kong, according to data compiled by Bloomberg. The contracts are at a 2.5 percent discount to the onshore spot rate. The offshore yuan traded in Hong Kong was at 6.1332 compared with 6.1347 late last week.

One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, declined two basis points, or 0.02 percentage point, to 1.79 percent, data compiled by Bloomberg show.

A reading from HSBC Holdings Plc and Markit’s Purchasing Managers Index released also today was at 48.2 for June, compared with 49.2 for May.

President Xi Jinping said officials shouldn’t be judged solely on their record in boosting gross domestic product, the Xinhua News Agency reported on June 29. That was the latest signal that policy makers are prepared to tolerate slower economic expansion.

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