Yuan Sees Best Week Since May as Li Signals Will Shore Up Growth

China’s yuan posted its best weekly gain since May after the government said it will prevent economic growth from dipping below 7 percent as data showed manufacturing contracted further in July.

Premier Li Keqiang was cited by local media this week as saying the nation can’t let expansion fall lower than the “bottom line” of 7 percent. Export growth will “recover” as yuan appreciation slows and the global market improves, Zhang Liqun, a researcher with the State Council’s Development Research Center, wrote in the People’s Daily today.

“Li’s remarks reassured investors that the government won’t stay on the sidelines if growth decelerates too quickly,” said Daniel Chan, a wealth management director at Hong Kong-based China Silver Global Investment Consultant Ltd. “The outlook for the yuan remains dim in the short term as export growth could still be trending down.”

The yuan gained 0.1 percent to close at 6.1316 per dollar this week in Shanghai after falling in the prior two weeks, China Foreign Exchange Trade System prices showed. The currency appreciated 0.05 percent today. It’s bucked a weakening trend in Asia this year, rising 1.6 percent.

The People’s Bank of China raised the reference rate by 0.06 percent to 6.1720 per dollar. The onshore spot rate is allowed to diverge a maximum 1 percent on either side of the daily fixing. In Hong Kong’s offshore market, the yuan gained 0.03 percent today to 6.1345 per dollar.

Trade Measures

One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, fell 13 basis points, or 0.13 percentage point, to 1.43 percent during the five days.

A preliminary Purchasing Managers’ Index compiled by HSBC Holdings Plc and Markit Economics was at 47.7 in July, below June’s final level of 48.2, according to a report this week. Fifty is the dividing line between expansion and contraction.

The Ministry of Industry and Information Technology ordered more than 1,400 companies in 19 industries to cut excess production capacity this year in an effort to shift toward more sustainable economic growth, it said in a statement yesterday.

China will release detailed measures to stabilize trade, Ministry of Commerce spokesman Shen Danyang said at a briefing in Beijing on July 25, without elaborating. Exports contracted in June for the first time since January 2012, while economic growth slowed to 7.5 percent in the second quarter.

Twelve-month non-deliverable forwards rose 0.09 percent today to 6.2765 per dollar, erasing this week’s losses. The contracts traded at a 2.3 percent discount to the onshore rate.

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