Yuan Gains for Sixth Day as Central Bank Sets Record Fixing

China’s yuan advanced for a sixth day, the longest winning streak since May, after the central bank strengthened the currency’s reference rate to a record.

The government called for “unrelenting” implementation of its economic policies and reforms to consolidate the nation’s recovery from a slowdown, according to a State Council statement released over the weekend. Asia’s largest economy grew 7.8 percent in the three months through September from a year earlier, from 7.5 percent in the previous quarter, data showed on Oct. 18. The yuan was 0.3 percent off the upper limit of the 1 percent band in which it’s allowed to trade from the central bank’s daily fixing each day, compared with about 0.7 percent on Oct. 8, data compiled by Bloomberg show.

The currency advanced 0.07 percent to 6.0925 per dollar at the close in Shanghai, China Foreign Exchange Trade System prices show. It touched 6.0915 on Oct. 18, the strongest level since the government unified the official and market exchange rates at the end of 1993.

“Expectations for appreciation are building up,” said Andy Ji, a foreign-exchange strategist in Singapore at Commonwealth Bank of Australia. “Today’s fixing is probably to relieve the pressure for intervention. Otherwise, they have to buy a lot of U.S. dollars.”

Concern over the U.S. government shutdown increased demand for the yuan, forcing policy makers to raise the daily fixing rate since early September, Bank of America Merrill Lynch economists led by Hong Kong-based Ting Lu wrote in an Oct. 18 research report. The People’s Bank of China boosted the reference rate by 0.03 percent to 6.1352 per dollar today, the strongest since a peg to the greenback was removed in July 2005.

Forwards, Offshore

Twelve-month non-deliverable forwards fell 0.02 percent to 6.1530 per dollar in Hong Kong, according to data compiled by Bloomberg. The contracts are trading at a 1 percent discount to the onshore spot rate.

In Hong Kong’s offshore market, the yuan was little changed at 6.0884, compared with 6.0893 on Oct. 18, 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 one basis point, or 0.01 percentage point, to 1.26 percent.

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