Offshore Yuan Gains Most in a Month After Bank of Japan Surprise

  • Currency rebounds from near one-month low in offshore trading
  • PBOC may raise yuan reference rate for stability, analyst says

The offshore yuan climbed the most in a month, reversing losses after the Bank of Japan unexpectedly refrained from expanding its monetary stimulus.

The currency traded in Hong Kong strengthened 0.27 percent to 6.4852 a dollar as of 4:48 p.m. local time. It dropped as low as 6.5156 after the People’s Bank of China cut the yuan’s reference rate and the Federal Reserve signaled it will probably raise interest rates at a gradual pace. The yen surged by the most in nearly six years versus the greenback.

Policy makers at the Japanese central bank left unchanged three key easing tools and postponed their time frame for reaching a 2 percent inflation target, the fourth delay in about a year. The move comes as a surprise to the slight majority of economists surveyed by Bloomberg, who had projected some action in response to a strengthening yen. The PBOC weakened the yuan’s daily fixing by 0.18 percent to 6.4954 a dollar.

“The Bank of Japan’s decision to be on hold may prompt the Chinese central bank to raise the yuan reference rates at a stronger-than-expected pace to maintain the yuan’s basic stability against the basket,” Andy Ji, a Singapore-based foreign-exchange strategist at Commonwealth Bank of Australia, said in an interview. “The yuan could rise toward 6.45 versus the dollar as the Bank of Japan’s decision to stay on hold, together with the Fed’s muted action overnight, increases downward pressure on the dollar.”

The yuan traded in Shanghai also erased an earlier decline, climbing 0.24 percent, the most in a week, to 6.4792 a dollar. A Bloomberg replica of the CFETS RMB Index, which measures the local currency against 13 exchange rates, fell to 97.29, near a 17-month low it touched last week.

Money Markets

The PBOC drained a net 150 billion yuan ($23 billion) through its open-market operations on Thursday as maturing reverse repos more than offset new offerings, resulting in a withdrawal of 80 billion yuan so far this week, data compiled by Bloomberg show. The seven-day repurchase rate, a gauge of interbank funding availability, rose 2 basis points to 2.47 percent, according to National Interbank Funding Center prices.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, climbed five basis points to 2.67 percent on Thursday, according to data compiled by Bloomberg.

— With assistance by Helen Sun

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