Offshore Yuan Rises to Three-Month High on Trade Surplus Outlook

The yuan traded in Hong Kong rose to a three-month high before a report that’s forecast to show China’s June trade surplus was the biggest since 2009.

Exports rose 10.5 percent last month from a year earlier, contributing to a trade excess of $37 billion, according to the median estimates of economists surveyed by Bloomberg before data due July 10. The Strategic and Economic Dialogue between Chinese and American leaders will be held in Beijing on July 9-10. The U.S. has been a longtime critic of China’s yuan policy, saying the currency is kept artificially weak to boost overseas sales.

The offshore yuan advanced 0.05 percent to 6.2028 per dollar as of 5 p.m. in Hong Kong, according to data compiled by Bloomberg. It touched 6.1988 earlier today, the strongest since April 10. In Shanghai, the currency was little changed and closed at 6.2040, China Foreign Exchange Trade System prices show. The People’s Bank of China cut the reference rate by 0.03 percent to 6.1658, taking this month’s decline to 0.21 percent. The yuan traded 0.6 percent weaker than the daily fixing, within the 2 percent limit.

“Investors are anticipating continued recovery in exports data and hence the yuan is getting some support,” said Tommy Ong, executive director of treasury and markets at DBS Bank Hong Kong Ltd. “The U.S.-China talks also bring some expectations that the yuan will rise further. However, the PBOC’s fixing suggests gains could still be limited.”

This week’s bilateral talks will include financial-sector opening and ‘‘frank’’ conversations on yuan rates, China’s Vice Finance Minister Zhu Guangyao spoke in Beijing today.

RQFII Program

China said today it will give Germany 80 billion yuan ($12.9 billion) of quotas in the Renminbi Qualified Institutional Investor program, in which German financial institutions can buy Chinese onshore securities.

“Growth of the RQFII program will boost demand for the offshore yuan and help the currency recover more of its first-half losses,” said Dariusz Kowalczyk, Hong Kong-based strategist at Credit Agricole CIB. The yuan in Hong Kong has dropped 2.36 percent this year against the greenback.

Twelve-month non-deliverable forwards rose 0.09 percent to 6.2580, 0.9 percent weaker than the onshore spot rate. One-month implied volatility in the onshore yuan, a gauge of expected moves in the exchange rate used to price options, was unchanged at 1.8 percent.

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