Yuan Forwards Drop as PBOC Sets Reference Rate at Two-Month Low

Yuan forwards fell as the central bank set the currency’s reference rate at a two-month low after a rally in the greenback.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 peers, rose 2.3 percent in the four days through yesterday as data showing the U.S. economy is improving bolstered the greenback. The People’s Bank of China cut the yuan’s daily fixing by 0.03 percent to 6.1543 per dollar, the weakest level since Sept. 5.

Twelve-month non-deliverable forwards declined 0.03 percent to 6.2481 per dollar as of 4:55 p.m. in Hong Kong, according to data compiled by Bloomberg. The contracts traded 2.1 percent weaker than the spot rate in Shanghai, which rose 0.05 percent to close at 6.1152, China Foreign Exchange Trade System prices show. The onshore currency was 0.64 percent stronger than the fixing, within the 2 percent limit.

“The PBOC fixing is weakened, given it’s more market-driven and hence follows the dollar’s moves,” said Nathan Chow, a Hong Kong-based economist at DBS Group Holdings Ltd. “However, that doesn’t mean the yuan will have a trend depreciation. The stock connect, which should be launched sooner or later, will boost demand for the Chinese currency.”

Hong Kong Chief Executive Leung Chun-ying told reporters today that he will discuss the start date for the program that will link the stock exchanges of the city and Shanghai when he is in Beijing for the Asia-Pacific Economic Cooperation meeting, which starts tomorrow.

China gave a 30 billion yuan ($4.9 billion) quota to Qatar under the Renminbi Institutional Investor program yesterday, the first time it has granted access to its domestic capital markets to a Middle Eastern country. The government will sell 12 billion yuan of bonds in Hong Kong in the week starting Nov. 17, the finance ministry said in a statement yesterday.

In Hong Kong’s offshore market, the yuan climbed 0.08 percent to 6.1225 per dollar, according to data compiled by Bloomberg. One-month implied volatility in the onshore yuan, a measure of expected swings used to price options, was unchanged at 1.73 percent.

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