Yuan Volatility Climbs With Spot After Strong Fix, Zhou Comments

Deloitte Economist on the Yuan's Internationalization

Volatility in China’s currency rose as the yuan rebounded after week-long holidays and the central bank governor called for a more market-based foreign-exchange rate mechanism.

The yuan’s one-month implied volatility climbed 35 basis points to 5.78 percent, the highest since Jan. 19. The currency appreciated 0.6 percent, its biggest gain in a month, to 6.5838 per dollar at 5:11 p.m. in Shanghai, adding to Monday’s 0.4 percent advance, and following a 1 percent slump in September.

People’s Bank of China Governor Zhou Xiaochuan called for the relaxation of capital controls in an interview with the Chinese financial magazine published shortly before the start of the Communist Party congress. The PBOC has been fixing daily reference rate at stronger levels than analysts expected.

Since the PBOC devalued the yuan two years ago, policy makers have used fixing guidance, verbal jawboning, direct intervention and capital controls to limit big swings in the exchange rate.

— With assistance by Helen Sun

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