Yuan Forwards Snap Three-Day Drop as China Keeps Policies Stable

Yuan forwards halted a three-day decline after the government said it will maintain economic policies and the central bank boosted the currency’s fixing toward an all-time high.

China will stick to a prudent monetary policy and proactive fiscal stance, China Central Television reported last week, citing a statement from the annual Central Economic Work Conference that ended Dec. 13. The People’s Bank of China raised the yuan’s reference rate by 0.04 percent to 6.1124 per dollar, near the record fixing of 6.11 on Dec. 11. The Bloomberg U.S. Dollar Index fell 0.2 percent in the past two days.

“China continues to be on track for stable growth and that will attract inflows,” said Banny Lam, Hong Kong-based co-head of research at Agricultural Bank of China International Securities Ltd. “However, the yuan is unlikely to deliver major gains before the end of the year as most of the optimism over reforms has been priced in.”

Twelve-month non-deliverable forwards rose 0.02 percent to 6.1325 per dollar as of 4:51 p.m. in Hong Kong, according to data compiled by Bloomberg. The contracts weakened 0.29 percent in the three days through Dec. 13, the biggest loss since July. They traded at a 0.99 percent discount to the spot rate in Shanghai today.

The onshore yuan was little changed at 6.0715 per dollar in Shanghai, compared with 6.0712 at the end of last week, China Foreign Exchange Trade System prices show. The currency touched 6.0703 on Dec. 10, the strongest level since the government unified the market and official exchange rates at the end of 1993. The spot rate can diverge a maximum 1 percent from the PBOC’s fixing.

Flash PMI

A preliminary reading of China’s Purchasing Managers’ Index was 50.5 in December, HSBC Holdings Plc and Markit Economics said today. That compares with the median estimate of 50.9 and November’s final reading of 50.8. A reading above 50 indicates expansion. The nation will relax market access for overseas investors next year, CCTV reported on Dec. 15, citing Xu Shaoshi, chairman of the National Development and Reform Commission.

The Federal Reserve will probably start cutting its $85 billion of monthly bond purchases at this week’s meeting, which starts tomorrow and concludes Dec. 18, according to 34 percent of economists surveyed Dec. 6 by Bloomberg. That was up from 17 percent in a Nov. 8 poll. A tapering of Fed stimulus would curb the supply of cheap dollar financing that has spurred demand for higher-yielding assets globally.

In Hong Kong’s offshore market, the yuan traded at 6.0724 per dollar, compared with a Dec. 13 close of 6.0722, 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, dropped two basis points to 1.8 percent.

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