China’s yuan strengthened to a 19-year high after the central bank set a record reference rate for the currency and Premier Li Keqiang reiterated the country was making progress in opening up its capital account.
The nation is steadily pushing forward market-oriented reform on interest rates and capital-account convertibility, according to an article that Li signed and published in Neue Zuricher Zeitung, a German-language Swiss newspaper. Industrial and Commercial Bank of China Ltd.’s Singapore branch said yesterday it will start offering yuan clearing services from May 27. The People’s Bank of China raised the daily fixing 0.13 percent to 6.1867 per dollar.
“The PBOC fixing and more adoption of yuan in offshore markets are positive for the exchange rate,” said Bruce Yam, a foreign-exchange strategist at Sun Hung Kai Financial Ltd. in Hong Kong. “There continues to be capital flowing into China, driving demand for the currency.”
The yuan rose 0.04 percent today to close at 6.1316 per dollar in Shanghai, extending its weekly advance to 0.17 percent, according to the China Foreign Exchange Trade System. It touched 6.1276, the strongest level since the government unified official and market rates at the end of 1993. The spot rate is allowed to diverge a maximum 1 percent on either side of the fixing.
China’s manufacturing is set to shrink in May for the first time in seven months, according to data released yesterday by HSBC Holdings Plc and Markit Economics. A preliminary reading for a Purchasing Managers’ Index was 49.6, which compares with a final reading of 50.4 for April and is below the 50 level that marks the dividing line between expansion and contraction.
“Investors should be aware of risks in the second half as slowing growth could precipitate debt problems,” Yam said. “That could lead to some yuan depreciation.”
Trading in gold using the Chinese currency has tripled in Hong Kong this year as the yuan’s rally to a 19-year high helps limits risks for jewelers, Chinese Gold & Silver Exchange Soceity president Haywood Cheung said in a May 15 interview.
In Hong Kong, the offshore yuan climbed 0.1 percent to 6.1245 per dollar today, according to data compiled by Bloomberg. It gained 0.3 percent since May 17, the eighth consecutive weekly advance. Twelve-month non-deliverable forwards advanced 0.11 percent to 6.2285, a 1.6 percent discount to the onshore spot rate.
One-month implied volatility in the yuan, a measure of expected moves in the exchange rate used to price options, increased 26 basis points, or 0.26 percentage point, this week to 2.07 percent. It rose four basis points today.
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