Bloomberg News

Yuan Forwards Gain Most in Three Months on Stimulus Speculation

September 04, 2012

Yuan forwards rose the most in three months on speculation policy makers from Brussels to Beijing will bolster efforts to spur economic growth.

European Central Bank President Mario Draghi told lawmakers in Brussels yesterday he would be comfortable buying short-dated bonds to contain the region’s debt crisis, said Jean-Paul Gauzes, a member of the European Parliament. China may draw up a five-year plan for domestic trade soon, Shanghai Securities News reported today, citing assistant commerce minister Fang Aiqing. The nation aims to boost retail sales to 32 trillion yuan ($5.1 trillion) by 2015, the report said.

“Any signs of a more stable Europe will support the yuan as it’s an important trading partner for China,” said Banny Lam, chief economist at CCB International Securities Ltd. in Hong Kong, a unit of China’s second-largest bank. “There’s hope that stimulus measures could come into effect in the fourth quarter, bolstering China’s growth.”

Twelve-month non-deliverable forwards gained 0.19 percent today, the most since June 6, to 6.4355 per dollar as of 4:38 p.m. in Hong Kong. The contracts traded 1.37 percent weaker than the spot rate in Shanghai, the data show. The discount was 1.65 percent yesterday, the widest since March 2009.

The yuan fell 0.1 percent to close at 6.3473 per dollar in Shanghai, according to the China Foreign Exchange Trade System. It rose to 6.3310 earlier, the strongest level since May 23. The yuan’s loss for this year narrowed to 0.84 percent.

The People’s Bank of China raised the yuan’s reference rate by 0.02 percent today to 6.3402 against the greenback, while the Dollar Index fell 0.07 percent. The local currency is allowed to trade as much as 1 percent on either side of the daily fixing. The spot rate closed at a stronger level than the fixing yesterday for the first time since April.

Clinton in China

U.S. Secretary of State Hillary Clinton visits China today and tomorrow for talks with President Hu Jintao and Vice President and heir apparent Xi Jinping to discuss maritime conflicts, as well as global security concerns, including Iran and North Korea’s nuclear programs.

“Clinton’s visit is likely to focus on geo-political issues rather than exchange rate,” said Lam. “China has strong reasons for not allowing rapid yuan appreciation as economic growth has slowed.”

In Hong Kong’s offshore market, the yuan was little changed at 6.3480 per dollar, according to data compiled by Bloomberg. One-month implied volatility, a measure of exchange-rate swings used to price options, was steady at 1.25 percent.

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

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net


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