Bloomberg News

Yuan Forwards Snap Three-Week Loss on Global Growth Optimism

February 26, 2012

Feb. 24 (Bloomberg) -- Yuan non-deliverable forwards were poised to snap a three-week loss after data in the U.S. and Europe bolstered the outlook for a global recovery and China sought to prop up growth by adding funds to the banking system.

Asian currencies gained today after reports yesterday showed better-than-estimated jobs and housing numbers in the U.S. and German business confidence rose to the highest level in seven months. The People’s Bank of China lowered the amount of cash lenders must set aside as reserves by half a percentage point to 20.5 percent, effective today.

“Data from the U.S. and Europe are encouraging for China’s exports,” said Kenix Lai, a currency analyst at Bank of East Asia Ltd. in Hong Kong. “The reserve-ratio cut also eases concern over a hard-landing in China as we see capital inflows into Asia resume.”

Twelve-month non-deliverable forwards climbed 0.06 percent this week to 6.2810 per dollar as of 10:25 a.m. in Hong Kong, a 0.2 percent premium to the onshore spot rate, according to data compiled by Bloomberg. The contracts were little changed today.

The yuan gained 0.03 to 6.2970 for the week, according to the China Foreign Exchange Trade System. The central bank raised the reference rate by 0.1 percent, the most in two weeks, to 6.2965. The currency is allowed to trade 0.5 percent either side of the daily fixing. In Hong Kong’s offshore market, the yuan was little changed at 6.2963, compared with 6.2970 yesterday, the same rate as Feb. 17.

The yuan will likely trade around 6.3 to the dollar in the “near term” as investors watch for more signals to confirm any global recovery, Lai said.

China’s central bank bought more foreign exchange than it sold for the first time in four months in January, according to official data released this week. Yuan positions at financial institutions increased to 25.5 trillion yuan ($4 trillion) as of the end of January, up 141 billion yuan from the previous month, PBOC data released on Feb. 20 showed.

--Editors: Simon Harvey, Anil Varma

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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