Offshore Yuan Rises on Stability Bets as Xi Pushes Global Usage

  • Chinese banks supported the currency on Tuesday, traders say
  • PBOC sold debt in offshore market for the first time

The yuan rose the most in almost a week in offshore trading on speculation Chinese authorities will prevent depreciation as President Xi Jinping promotes the currency’s use in global trade and finance during a trip to the U.K. this week.

The People’s Bank of China sold debt overseas for the first time on Tuesday with a one-year bill sale in London and Xi, in a speech to both houses of Parliament, singled out the U.K.’s place as the leading offshore yuan trading center outside Hong Kong and its pioneering issuance of sovereign bonds denominated in the currency. A few Chinese banks sold dollars in the onshore currency market to prop up the yuan during Asian trading hours of the same day, according to two traders who asked not to named.

"There’s speculation that Chinese authorities will intervene and keep the yuan stable as Xi’s in London to promote the currency’s global use," said Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking Corp. "The central bank wants to improve sentiment, because the market will probably start to worry about deeper depreciation if the yuan continues to weaken like it did in the previous days."

The freely traded offshore yuan rose 0.07 percent, the most since Oct. 15, to 6.3676 a dollar as of 4:59 p.m. in Hong Kong, according to data compiled by Bloomberg. The currency retreated 0.41 percent last week, its biggest loss since August, as data showed a contraction in imports and deepening factory-gate deflation.

Investors from Europe and the U.S. bought almost half of the 5 billion yuan ($788 million) of bills offered by the PBOC and bids totaling more than 30 billion yuan were tendered for the debt. The sale is a precursor to China’s debut issuance of yuan-denominated sovereign bonds outside of the domestic market and Hong Kong, which will also take place in London.

The onshore yuan, which is restricted to moving a maximum 2 percent on either side of a daily fixing, closed little changed at 6.3482 a dollar in Shanghai, according to China Foreign Exchange Trade System prices. The People’s Bank of China raised its daily fixing by 0.22 percent, the most since Oct. 13, to 6.3473.

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-requirement ratios before year-end, HSBC Holdings Plc forecast the same day.

— With assistance by Tian Chen

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