Yuan Forwards Decline Most in Three Weeks as PBOC Lowers Fixing

Yuan forwards fell the most in three weeks after China’s central bank weakened the currency’s onshore reference rate by the most since July.

The People’s Bank of China lowered the yuan’s daily fixing by 0.1 percent, the most since July 30, to 6.1366 per dollar. Deputy Governor Yi Gang said in a speech yesterday that it no longer benefits China to increase the nation’s foreign-currency reserves that now exceed a record $3.7 trillion.

Twelve-month non-deliverable forwards fell 0.09 percent to 6.1510 per dollar as of 4:35 p.m. in Hong Kong, the biggest drop since Oct. 31, data compiled by Bloomberg show. The contracts traded at a 0.9 percent discount to the onshore spot rate, which was little changed at 6.0932 at the close, China Foreign Exchange Trade System prices show. The spot rate in Shanghai is allowed to diverge a maximum 1 percent from the fixing.

“The PBOC will intervene less and allow more two-way moves for the currency,” said Teck Kin Suan, a Singapore-based economist at United Overseas Bank Ltd. “They will probably give more movement to the fixing rather than just have a one-way appreciation.”

A Chinese manufacturing gauge declined for the first time in four months, limiting a recovery in the world’s second-largest economy as leaders start to implement the broadest policy reforms since the 1990s.

The preliminary 50.4 reading in November for a Purchasing Managers’ Index released today by HSBC Holdings Plc and Markit Economics compared with the 50.8 median estimate of analysts surveyed by Bloomberg News. The final number for October was 50.9. Levels above 50 indicate expansion.

In Hong Kong’s offshore market, the yuan slipped 0.07 percent to 6.0706 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 five basis points, or 0.05 percentage point, to 1.58 percent.

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