China's Yuan Advances Most in a Week on Suspected Intervention

  • Local banks sold dollars to support onshore yuan, traders say
  • Yuan fell earlier on speculation more monetary easing likely

The yuan rose the most in a week, reversing an earlier decline, on speculation Chinese authorities propped up the currency after drops in the previous two sessions.

A few Chinese banks sold dollars in the onshore currency market, according to two traders who asked not to named. That spurred more lenders to follow suit, one of the traders said. The U.S. Treasury dropped its view that the yuan is significantly undervalued, but said it remains “below its appropriate medium-term valuation,” according to a semiannual report.

The onshore yuan, which is restricted to moving a maximum of 2 percent either side of a daily fixing, rose 0.18 percent, the most since Oct. 12, to close at 6.3488 a dollar in Shanghai, according to China Foreign Exchange Trade System prices. The currency fell as much as 0.14 percent earlier following declines of 0.11 percent on Monday and Friday.

"The market chatter is intervention," said Sue Trinh, head of Asia foreign-exchange strategy at Royal Bank of Canada in Hong Kong. The weakening of the yuan in previous days "had gone too far for the time being for their liking," and the onshore rate looks expensive at current levels, she said.

The freely traded offshore rate in Hong Kong was steady at 6.3731 a dollar as of 4:43 p.m. local time, after declining as much as 0.24 percent, according to data compiled by Bloomberg. The People’s Bank of China cut its daily fixing by 0.14 percent to 6.3614.

Stimulus Bets

China’s economy expanded 6.9 percent in the third quarter from a year earlier, the least since early 2009, a report showed on Monday. There will be one more 25 basis point cut in benchmark interest rates and a 1.5 percentage points reduction in lenders’ reserve ratios before year-end, HSBC Holdings Plc forecast the same day.

It’s unnecessary to be anxious over China’s economic growth in the first nine months of the year, as it was within expectations, the official Xinhua News Agency wrote in a commentary on its website Monday. Positive signs are increasing and the economy has momentum, Xinhua wrote in a separate report that cited a meeting of the National Committee of the Chinese People’s Political Consultative Conference.

"The market is concerned about China’s growth due to the weak data and risk appetite is lower," said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. "China’s central bank will probably cut reserve-requirement ratios at least once more this year to stimulate growth."

China intervened “heavily” in the foreign-exchange market in the last three months, spending an estimated total of $229 billion to prevent the yuan from falling, the U.S. Treasury said in its report. A test of China’s new regime will be whether it allows the currency to “respond flexibly to appreciation as well as depreciation pressures,” it said.

— With assistance by Tian Chen

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