China Yuan Strengthens to Seven-Month High After Fixing Boosted

China’s yuan touched a seven-month high on speculation the central bank wants a stronger currency to spur domestic demand.

The People’s Bank of China raised its reference rate by 0.03 percent to 6.1446 per dollar, the first increase in four days. Economic growth will slow to 7.2 percent this quarter, from 7.3 percent in the previous three months, as local demand weakens, Song Guoqing, an academic member of the PBOC’s monetary policy advisory committee, said Oct. 25 in Beijing.

“It’s all about the firmer fixing,” said Dariusz Kowalczyk, a strategist at Credit Agricole CIB in Hong Kong. “The spot market has adjusted to the perception that the PBOC is signaling preference for further appreciation. Beijing wants a stronger currency because domestic demand was quite weak.”

The yuan closed 0.01 percent stronger at 6.1167 per dollar in Shanghai after climbing as much as 0.07 percent to 6.1132 earlier, China Foreign Exchange Trade System prices show. That was the strongest level since March 7. In Hong Kong, the yuan traded offshore rose 0.03 percent to 6.1219, according to data compiled by Bloomberg.

Twelve-month non-deliverable forwards on the yuan advanced 0.10 percent to 6.2400 per dollar, 2 percent weaker than the Shanghai spot rate, according to data compiled by Bloomberg. One-month implied volatility in the onshore yuan, a measure of expected swings used to price options, fell six basis points, or 0.06 percentage point, to 1.86 percent.

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