The yuan strengthened beyond 6.21 per dollar for the first time in 19 years after the central bank raised the currency’s reference rate and as a bailout deal for Cyprus spurred demand for emerging-market assets.
The People’s Bank of China increased the daily fixing by 0.03 percent to 6.2692 per dollar today, the strongest level since Jan. 15. The currencies of Asia’s developing economies appreciated today as euro-area finance ministers approved a bailout for Cyprus. China will maintain a “reasonable” level of investment as it targets a pickup in domestic demand, the China Securities Journal reported today, citing National Development and Reform Commission Vice Chairman Zhu Zhixin.
“A stronger exchange rate could help China tame inflationary pressures and boost domestic consumption by lowering prices of imports,” said Daniel Chan, a Hong Kong- based executive vice president at Glory Sky Global Markets Ltd. “The yuan is also hailed as a stable currency and hence has attracted some fund flows in times of uncertainty.”
The yuan gained 0.02 percent to close at 6.2107 per dollar in Shanghai, prices from China Foreign Exchange Trade System show. It touched 6.2095 earlier, the strongest level since the government unified official and market exchange rates at the end of 1993. The currency traded at a 0.95 percent premium to the reference rate, near the 1 percent limit allowed by the central bank.
The stronger yuan may be an indication that China wants to show its fellow BRICS nations that it is making efforts to balance external positions, Dariusz Kowalczyk, a Hong Kong-based Credit Agricole CIB strategist, wrote in a note today. Leaders of Brazil, Russia, India, China and South Africa will meet tomorrow for the fifth annual BRICS summit in Durban, South Africa. Chinese Premier Xi Jinping, who arrived in Tanzania yesterday, will attend the two-day meeting.
Chinese banks bought $121.2 billion of foreign currency from their clients and sold $89 billion in February, leaving a surplus of $32.2 billion, the State Administration of Foreign Exchange said today.
In Hong Kong’s offshore market, the Chinese currency was steady at 6.2040 per dollar, data compiled by Bloomberg show. Twelve-month non-deliverable forwards rose 0.04 percent to 6.3014, trading at a 1.4 percent discount to the spot rate in Shanghai.
One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, fell two basis points, or 0.02 percentage point, to 1.22 percent.
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