China Raises Yuan Fixing for 3rd Week as More Reform Eyed

The People’s Bank of China raised the yuan’s reference rate for a third week, the longest streak in three months, amid speculation policy makers are preparing to widen the currency’s trading band.

The central bank set the fixing at 6.1495 per dollar today, 0.1 percent stronger than Sept. 18 and 0.03 percent weaker than yesterday. The yuan in Shanghai was steady today and this week at 6.1202 in Shanghai, China Foreign Exchange Trade System prices show. The currency is allowed to trade within 1 percent of the fixing.

The onshore spot rate traded at a 0.48 percent premium to the reference rate versus an average of 0.84 percent over the past year, data compiled by Bloomberg show. The combination of spot trading volatility being kept intentionally very low and the fixing being guided closer to the spot rate, implies China could be on the cusp of another widening in the yuan trading band, Sacha Tihanyi, a strategist at Scotiabank in Hong Kong, wrote in a research note yesterday.

“We think the fixing will converge with the spot, which opens the door for further foreign-exchange reforms like a band widening,” said Ju Wang, a senior foreign-exchange strategist at HSBC Holdings Plc in Hong Kong. “The fixing still has some room” to strengthen, she said.

Twelve-month non-deliverable forwards fell 0.1 percent this week and 0.05 percent today to 6.1999 per dollar, according to data compiled by Bloomberg. The contracts traded at a 1.3 percent discount to the onshore spot rate.

In Hong Kong’s offshore market, the yuan dropped 0.11 percent this week to 6.1180 per dollar and was little changed today, 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, slipped three basis points, or 0.03 percentage point, since Sept. 20 to 1.24 percent. The gauge declined two basis points today.

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