The yuan climbed the most in two weeks before talks between U.S. and Chinese officials in Beijing tomorrow that will probably include discussion of whether the currency is undervalued.
The fourth round of the U.S.-China strategic and economic dialogue involves U.S. Treasury Secretary Timothy F. Geithner and officials led by Chinese Vice Premier Wang Qishan. The People’s Bank of China raised the fixing 0.19 percent to 6.2670 per dollar today, the strongest level since a peg ended in July 2005 and 0.7 percent stronger than last week’s closing price.
“That’s definitely a friendly fixing for tomorrow’s meeting and it’s quite a natural move for China,” said Tommy Ong, the Hong Kong-based senior vice president of treasury and markets at DBS (Hong Kong). “Officials want to show their willingness to allow market forces to play a bigger role in the yuan’s exchange rate.”
The yuan advanced 0.17 percent, the most since April 17, to 6.2995 per dollar as of 9:53 a.m. in Shanghai, according to the China Foreign Exchange Trade System. The currency traded at a 0.52 percent discount to the reference rate and is allowed to trade 1 percent either side of the daily fixing.
The yuan’s 23 percent rally against the dollar in the past five years doesn’t impress Republican presidential candidate Mitt Romney, who vows on the campaign trail to brand China a “currency manipulator.” The view is more tempered in Washington, where Geithner praises China for letting the yuan trade more freely. Lawmakers from Romney’s own party, including House Speaker John Boehner and Representative Dave Camp, say a Senate-backed bill punishing China for undervaluing the currency to boost exports ignores such issues as intellectual-property theft and might prompt a trade war.
Asian currencies advanced after reports showing expansion in the U.S. and Chinese manufacturing brightened the outlook for regional exports to the world’s two biggest economies. The Purchasing Managers’ Index in China rose to 53.3 in April, the fifth straight reading above the 50 level dividing expansion from contraction, according to official data yesterday.
In Hong Kong’s offshore market, the yuan gained 0.03 percent to 6.2987. Twelve-month non-deliverable forwards rose 0.1 percent to 6.3395, a 0.6 percent discount to the onshore spot rate, according to data compiled by Bloomberg.
One-month implied volatility for the currency, a measure of exchange-rate swings used to price options, was unchanged at 2.1 percent.
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