Yuan Forwards Decline to One-Month Low on Plenum Disappointment

Yuan forwards fell to a one-month low after a Communist Party meeting this week that signaled a loosening of exchange-rate controls without giving details.

China will make markets “decisive” in allocating resources, according to a Nov. 12 communique from the third full meeting, or plenum, of the party’s 18th Central Committee. The People’s Bank of China weakened the reference rate by 0.06 percent to 6.1351 per dollar, after raising it to a record yesterday. The fixing, from which the onshore spot rate can diverge a maximum of 1 percent, was little changed from Nov. 8.

“There was disappointment there wasn’t a lot of reform measures being put in black and white,” said Ho Woei Chen, a Singapore-based economist at United Overseas Bank Ltd. The yuan’s weaker fixing today is “to encourage two-way trading,” she said.

Twelve-month non-deliverable forwards fell 0.11 percent this week to 6.1645 per dollar as of 4:46 p.m. in Hong Kong, according to data compiled by Bloomberg. The contracts declined 0.05 percent today and were trading at a 1.2 percent discount to the spot rate. They touched 6.1675, the weakest since Oct. 14.

In Shanghai, the yuan slipped 0.03 percent this week and was steady today at 6.0922 per dollar, China Foreign Exchange Trade System prices show. It reached 6.0802 on Oct. 25, the strongest level since the government unified the official and market exchange rates at the end of 1993, and has appreciated 2.3 percent in 2013.

Lew Visit

“Market participants had expected a detailed road map of further financial sector liberalization, in particular, a timetable of full capital-account convertibility,” Andy Ji, a currency strategist in Singapore at Commonwealth Bank of Australia, wrote in a report today. “Details of reforms are expected to be announced in coming weeks and months.”

U.S. Treasury Secretary Jacob J. Lew is meeting with People’s Bank of China Governor Zhou Xiaochuan and Vice Premier Wang Yang in Beijing today, the U.S government said in a statement. China should speed its move to a market-determined exchange rate and open up its markets more, Lew wrote in a Nov. 12 editorial in The Wall Street Journal Asia.

In Hong Kong’s offshore market, the yuan gained 0.05 percent this week to 6.0770 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, fell six basis points, or 0.06 percentage point, this week to 1.66 percent.

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