China’s central bank set the strongest yuan reference rate on record before Chinese President Xi Jinping and U.S. counterpart Barack Obama meet for talks in California later today.
The People’s Bank of China raised the yuan’s fixing by 0.19 percent to a record 6.1620 per dollar. The increase was the biggest since May 2, official data show. The onshore spot rate gained 0.04 percent today and was little changed this week before data tomorrow that may show export growth halved in May. The currency has appreciated 1.6 percent this year, Asia’s best performance.
“Every time there is a high-profile meeting between the U.S. and China, the yuan has to appreciate,” said Nathan Chow, a Hong Kong-based economist at DBS Group Holdings Ltd. “Near term the yuan may face more pressure for a correction. The market is expecting the trade figures won’t be so good.”
The Obama administration and U.S. lawmakers have argued the yuan remains weak enough to give China, the world’s biggest exporter, an unfair advantage in global trade. The Treasury Department declined to label Asia’s biggest economy a currency manipulator in a semi-annual report to Congress on April 12, while saying the yuan “remains significantly undervalued.”
The yuan closed at 6.1335 per dollar in Shanghai, compared with 6.1362 yesterday and 6.1345 at the end of last week, according to China Foreign Exchange Trade System prices. That is 0.5 percent stronger than the fixing, the smallest premium since September. The exchange rate is allowed to diverge from the fixing by a maximum 1 percent. China’s financial markets will be shut June 10-12 for the Dragon Boat festival holiday.
The currency touched 6.1210 on June 3 and May 27, the strongest level since the government unified official and market exchange rates at the end of 1993.
Xi is set to meet Obama June 7-8 in Rancho Mirage, California. The meeting will be their first since Xi took over as general secretary of China’s Communist Party and president in a once-a-decade power shift that took place in March.
China’s exports rose 7.4 percent in May from a year earlier, half the previous month’s reported 14.7 percent, based on the median estimate of economists ahead of data due tomorrow. The government will also report import data, followed by releases on prices, industrial production, retail sales and investment on June 9.
In Hong Kong’s offshore market, the yuan rose 0.2 percent this week to 6.1372 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards advanced 0.1 percent in the past five days to 6.2575, trading at a 2 percent discount to the onshore exchange rate. The offshore yuan slipped 0.06 percent and forwards fell 0.1 percent today.
One-month implied volatility in the yuan, a measure of expected moves in the exchange rate used to price options, dropped 20 basis points, or 0.20 percentage point, to 1.84 percent this week. The gauge rose five basis points today.
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