Yuan Forwards Complete Biggest Monthly Advance in Three Years

Yuan forwards completed their best month since 2012 on bets China will use stimulus measures rather than a weaker exchange rate to spur economic growth as it bolsters the case for the yuan being named a global reserve currency.

The nation can’t rely on a declining yuan to help exports and doesn’t want further devaluation, Premier Li Keqiang said in an interview with the Financial Times in April. China is making the yuan more “freely usable” in order to be included in the International Monetary Fund’s Special Drawing Rights basket of reserve currencies, People’s Bank of China Governor Zhou Xiaochuan said in Washington on April 18. Analysts this month raised their yuan forecasts for the first time since September.

“The market is positive on the yuan as China’s leadership openly voiced support for the currency and on speculation the central bank will keep it stable for SDR inclusion,” said Tommy Xie, an economist at Overseas-Chinese Banking Corp. in Singapore. “The dollar weakness will continue on bets the Federal Reserve won’t raise interest rates soon.”

Twelve-month non-deliverable yuan forwards jumped 1.3 percent this month, the most since January 2012, to 6.2735 a dollar as of 4:57 p.m. in Hong Kong, data compiled by Bloomberg show. They fell 0.06 percent on Thursday. In the spot market in Shanghai, the yuan declined 0.05 percent for April and on Thursday to close at 6.2028, China Foreign Exchange Trade System prices show. It had rallied 1.1 percent in March.

The yuan is predicted to end 2015 at 6.20 against the greenback, according to the median of analyst estimates in a Bloomberg survey. The forecast was 6.23 at the end of March. The IMF’s board is scheduled to conduct a twice-a-decade review of SDRs in October after an informal briefing in May. Markets are closed Friday to mark the Labor Day holiday.

Yuan Fixing

The yuan regained the fifth ranking in global payments in March from seventh in February, the Society for Worldwide Financial Telecommunications said in a statement Thursday. The currency’s market share was 2.03 percent last month, and it became the second most-used by Canada for payments with China and Hong Kong after the Canadian dollar, Swift said.

In Hong Kong’s offshore market, the yuan dropped 0.04 percent from March 31 to 6.2085 a dollar, according to data compiled by Bloomberg. It fell 0.11 percent Thursday. The PBOC raised the yuan’s fixing by 0.05 percent to 6.1137 in a sixth straight day of increases, the longest stretch since August 2013. The gap between the onshore yuan and the fixing was 1.46 percent, within the 2 percent limit.

A gauge of dollar strength slumped 3.1 percent this month to head for its first monthly decline since June. The Fed reiterated this week it will raise rates when it sees further labor-market improvement and is “reasonably confident” inflation will rise back to its 2 percent goal over time.

— With assistance by Tian Chen

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