China’s yuan rose to a 19-year high after the central bank raised its reference rate for the currency and a report indicated that manufacturing expanded in March at the fastest pace in 11 months.
The People’s Bank of China increased the currency’s fixing by 0.02 percent to 6.2674 per dollar, the strongest level since May 2012. China will work to stabilize economic growth and control inflation, Vice Premier Zhang Gaoli said March 29, according to a China National Radio report. An official Purchasing Managers’ Index was 50.9 in March, the highest since April 2012 and above the 50 level that represents the dividing line between growth and contraction.
“With Chinese growth recovering from last year’s slowdown and the PBOC shifting its concern toward inflation pressures, a stronger currency is one way to try to manage inflation,” said Khoon Goh, a senior strategist at Australia & New Zealand Banking Group Ltd. in Singapore. He predicts the yuan will rise to 6.10 per dollar by the end of 2013.
The yuan advanced 0.05 percent to 6.2080 per dollar in Shanghai, a 0.96 percent premium to the reference rate, according to China Foreign Exchange Trade System data. It touched 6.2073 earlier, the strongest level since the government unified official and market exchange rates at the end of 1993. The currency is allowed to trade as much as 1 percent either side of the fixing.
One-month implied volatility, a measure of expected moves in exchange rates used to price options, fell two basis points, or 0.02 percentage point, to 1.19 percent, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards rose 0.08 percent to 6.2972 per dollar in offshore trading, a 1.4 percent discount to the spot rate in Shanghai, according to data compiled by Bloomberg.
Hong Kong’s financial markets were closed for a holiday, limiting offshore trading in the yuan.
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