Yuan Forwards Rise on Bets PBOC to Support Currency Before G-20

  • Spot rate steady as central bank strengthens yuan fixing
  • Authorities to ensure stability to bolster sentiment: analyst

Yuan forwards rose the most in a week on speculation Chinese policy makers will support the currency before a meeting of the Group of 20 central bankers and finance ministers. Government bonds fell.

Officials from the world’s biggest economies meeting in Shanghai on Feb. 26 and 27 will discuss the recent turmoil in China’s markets and ways to bolster a safety net for the global financial system, according to officials familiar with the agenda for the talks. People’s Bank of China Governor Zhou Xiaochuan said Friday the country’s past makes its policy makers more likely to want to intervene when they perceive markets are in trouble.

"The PBOC will likely support the yuan to ensure its stability before the G-20 meeting because it would like to see good sentiment and minimum negative comments during the gathering," said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. in Hong Kong. "The central bank’s stance of keeping the currency relatively stable has been very clear, so there won’t be major gains or losses in the near future."

Twelve-month non-deliverable forwards on the yuan climbed 0.16 percent, the most since Feb. 15, to 6.7765 a dollar as of 4:41 p.m. in Hong Kong, data compiled by Bloomberg show. The onshore currency was steady at 6.5196, according to China Foreign Exchange Trade System prices. The PBOC raised its reference rate by 0.03 percent to 6.5165. The offshore yuan traded freely in Hong Kong was little changed at 6.5247, data compiled by Bloomberg show.

PBOC Stance

Leading up to the G-20 conclave, PBOC’s Zhou broke his months-long silence with an interview with Caixin magazine published Feb. 13, arguing there’s no basis for continued yuan depreciation and that the central bank can’t “reveal its operational strategies” to speculators. International Monetary Fund Managing Director Christine Lagarde said Friday that Zhou comments were a “good example of how communication can actually clear the uncertainties and the trepidation.”

The PBOC on Thursday omitted details of financial institutions’ foreign-exchange holdings from monthly data that sheds light on the scale of its intervention to support the yuan. The change took effect in its report for January, when the currency’s slide to a five-year low prompted the PBOC to step up efforts to boost the exchange rate. While the authority announced a $99.47 billion drop in its foreign-exchange reserves for last month, less than December’s record $107.9 billion drop, the figure may not represent the true extent of dollar sales if state-owned lenders were also used to intervene.

‘Data Confusion’

"The data confusion will, we think, sustain elevated criticism of China’s economic policy transparency going into this weekend’s G-20 meeting," said Tim Condon, head of Asian research at ING Groep NV in Singapore. Policy communication could be a topic during the gathering "because China and the U.S. are the countries that matter most today for global financial markets," he said.

The yield on China’s government bonds maturing October 2025 rose one basis point to 2.89 percent, prices from the National Interbank Funding Center show. The seven-day repurchase rate, a gauge of interbank liquidity, fell one basis point to 2.26 percent, according to a weighted average from the Center. The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, was steady at 2.30 percent, data compiled by Bloomberg show.

— With assistance by Tian Chen

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