Yuan Posts Biggest Weekly Gain Since June on Record Surplus

China’s yuan completed the biggest weekly advance since June as export growth that beat forecasts contributed to a record trade surplus.

Overseas shipments rose 14.5 percent from a year earlier in July, according to customs data, compared with the median estimate in a Bloomberg survey for a 7 percent increase and June’s 7.2 percent advance. Imports fell 1.6 percent to give a trade surplus of $47.3 billion.

The yuan strengthened 0.38 percent this week to close at 6.1567 per dollar in Shanghai, the biggest gain since the five days ended June 13, China Foreign Exchange Trade System prices show. The currency climbed 0.08 percent today and touched 6.1553 earlier, the strongest level since March 17.

“It’s quite clear sentiment on China has improved a lot,” said Eddie Cheung, a foreign-exchange strategist at Standard Chartered Plc in Hong Kong. The bank expects the currency to reach 6.09 per dollar by year-end, Cheung said.

The People’s Bank of China raised the yuan’s reference rate today by 0.18 percent, the most since July 10, to 6.1562 per dollar. That’s the strongest in almost three weeks. U.S. Treasury Secretary Jacob J. Lew said in July that China should pursue a more market-determined exchange rate and questioned why the currency was allowed to weaken in the past year. The yuan fell as much as 3.5 percent in 2014, before paring its loss to 1.7 percent.

Bullish Implications

“The fixing shift is likely an effort to offset any political criticism that could come from today’s July trade release,” Sacha Tihanyi, a Hong Kong-based currency strategist at Scotiabank, wrote in a note today. “The implication for the yuan remains bullish.”

The spot rate strengthened beyond the central bank’s fixing this week for the first time since its trading band was doubled to 2 percent on March 17 and was almost on par with the reference rate today.

In Hong Kong’s offshore market, the yuan rose 0.13 percent today and 0.28 percent this week to 6.1570 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards gained 0.14 percent to 6.2338 today, extending an advance since Aug. 1 to 0.28 percent. The contracts traded at a 1.2 percent discount to the Shanghai spot rate.

One-month implied volatility in the onshore yuan, a gauge of expected swings in the exchange rate used to price options, rose nine basis points, or 0.09 percentage point, to 1.54 percent today. The gauge climbed eight basis points this week.

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