Yuan Advances Most Since March as Central Bank Signals Support

  • China planning steps to back yuan's case at IMF: PBOC's Yi
  • Major local lenders seen selling dollars in onshore market

The yuan strengthened the most since March amid speculation Chinese lenders sold dollars to prop up the exchange rate as the International Monetary Fund prepared to take a decision on whether to include the currency in its basket of global reserves.

Several banks were seen selling the greenback on Monday, according to a trader at a regional commercial lender. This comes after People’s Bank of China Deputy Governor Yi Gang said at an IMF meeting on Friday that his nation is planning several steps to push the yuan’s case, such as opening the domestic bond and currency markets to foreign central banks and issuing three-month Treasury bills weekly to establish “representative” yuan interest and exchange rates. The IMF will conduct its five-yearly review in early November.

The yuan climbed 0.35 percent, the most since March 19, to close at a two-month high of 6.3230 a dollar in Shanghai, according to China Foreign Exchange Trade System prices. In Hong Kong’s offshore market, the currency rose 0.32 percent to 6.3180 as of 6:21 p.m. local time, data compiled by Bloomberg show. The PBOC raised its fixing by 0.14 percent to 6.3406. That’s the strongest since Aug. 12, the day after a surprise yuan devaluation that triggered the currency’s steepest decline in two decades.

“The PBOC has successfully stabilized market sentiment, and the stronger fixings are supporting the yuan,” said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. in Hong Kong. “The central bank will keep the yuan stable in the next two or three weeks before the IMF announces its reserve-currency decision.”

IMF Chances

The yuan has more than a 70 percent chance of being included in the IMF’s Special Drawing Rights basket next month as it seems to have largely met the operational standards of a reserve currency, China International Capital Corp. said in a note dated Oct. 11. The currency overtook Japan’s yen to become the fourth most-used for global payments in August, according to a Society for Worldwide Interbank Financial Telecommunications statement last week.

The yuan is still far from becoming a reserve currency, Swift CEO Gottfried Leibbrandt said at a conference in Singapore on Monday. “It will be a while before the yuan gets there and yet it’s interesting to watch its rise,” said Leibbrandt.

China’s exports probably fell 6 percent in dollar terms from a year earlier in September, following a 5.5 percent decline in August, according to the median estimate in a Bloomberg survey before data due Tuesday. Imports may have contracted 16 percent, leaving a trade surplus of $48.21 billion.

The PBOC said over the weekend that it would expand a trial program that allows lenders to borrow from the monetary authority using credit assets as collateral to nine cities including Shanghai and Beijing. The move, which could be seen as a form of stimulus, will add liquidity and improve sentiment in the short term, said Nathan Chow, a Hong Kong-based economist at DBS Group Holdings Ltd.

— With assistance by Tian Chen

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