Yuan Nearing PBOC Rate Spurs Band Speculation: Chart

The yuan is converging with the central bank’s reference rate at a record pace, a sign to ING Groep NV that China may be planning to widen the currency’s daily trading band.

The CHART OF THE DAY shows the gap has narrowed to 0.6 percent in Shanghai, having been on the cusp of its 2 percent limit at the start of the month. The People’s Bank of China doubled the yuan’s trading range a year ago after the difference narrowed to less than 0.3 percent from a January 2014 average of 0.9 percent. Intervention may be a factor behind the latest convergence, according to Standard Chartered Plc and Overseas-Chinese Banking Corp Ltd.

“It’s like a parallel with a year ago as they are in a concerted effort to push the spot away from the band’s limit,” Tim Condon, head of Asia research at ING in Singapore, said by phone. “A wider band is in line with the thinking that China wants more market forces in determining the exchange rate.”

The yuan is Asia’s best performer for the third week in a row and the sole currency in the region to have strengthened this month against the dollar. China has pledged to free up the exchange rate to boost global usage of the yuan and have it included in the International Monetary Fund’s basket of reserve currencies.

The yuan strengthened 1.2 percent this week to 6.1875 per dollar in Shanghai, the biggest gain since a peg was scrapped in July 2005. The reference rate was raised 0.15 percent to 6.1496 this week. The gap was 1.95 percent on March 3, when PBOC’s Deputy Governor Yi Gang said there was no “urgent need” to expand the trading range.

“We could see pretty strong intervention in the market, trying to move the spot away from the edge of the band,” Eddie Cheung, a foreign-exchange strategist at Standard Chartered in Hong Kong, said by phone. “Before a band-widening, you want to have the spot-fix gap to be smaller and yuan depreciation expectations not becoming too entrenched.”

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