The yuan gained the most in almost a month after U.S. data signaled the world’s largest economy is improving, bolstering the outlook for Chinese exports.
The currency rebounded from near the weakest level since March 21 as the People’s Bank of China set the daily reference rate 0.1 percent stronger at 6.2896 per dollar. The central bank widened the yuan’s trading band to 1 percent on either side of the fixing from 0.5 percent, effective yesterday. U.S. retail sales increased 0.8 percent in March, official figures showed yesterday, compared with the median estimate of economists surveyed by Bloomberg for a 0.3 percent gain.
“Some people hope China’s exports could get a helping hand from a stronger U.S. economy,” said Banny Lam, a Hong Kong- based economist at CCB International Securities Ltd., a unit of China’s second-largest bank. “It’ll take some time to see the real impact of a wider band on the exchange rate but surely we are having more volatility.”
The yuan strengthened 0.21 percent, the most since March 22, to close at 6.3015 per dollar in Shanghai, according to the China Foreign Exchange Trade System. It fell to 6.3250 yesterday, the weakest level since March 21. One-month implied volatility for the yuan, a measure of exchange-rate swings used to price options, dropped three basis points to 2.475 percent.
In Hong Kong’s offshore market, the yuan climbed 0.11 percent to 6.2995 per dollar. Twelve-month non-deliverable forwards advanced 0.10 percent to 6.3445, a 0.7 percent discount to the onshore spot rate.
Foreign Direct Investment
Foreign direct investment in China fell 6.1 percent from a year earlier to $11.76 billion in March, dropping for a fifth month, the Ministry of Commerce said today in Beijing. That compared with a 0.9 percent decline the previous month and a 32.9 percent jump in March last year.
“This highlights the declining attractiveness of the country for foreign businesses amid a stronger currency and higher labor costs,” Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB, wrote in a note to clients today. “Declining direct investments will further reduce China’s external surplus and lower appreciation pressure on the yuan.”
China allowed banks to hold positions that profit from declines in foreign currencies on a limited basis to “facilitate the price-discovery” and spur growth in the market, the State Administration of Foreign Exchange said in a statement yesterday.
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