Yuan Forwards Little Changed on Speculation China to Cap Gains
January 25, 2010, 06:38 AM EST
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Jan. 25 (Bloomberg) -- Yuan forwards were little changed on speculation the government will cap currency appreciation this year to minimize the impact on exporters.
Commerce Minister Chen Deming said on Jan. 19 that a stable yuan is in the interest of the global economy. Goldman Sachs Group Inc. Chief Economist Jim O’Neill said in an interview on Jan. 23 that China will probably let its currency appreciate by at least 5 percent in a one-time move to curb inflationary pressures.
“The one-off revaluation is impossible because that will devastate exporters who are just about to recover,” said Liu Dongliang, a Shenzhen-based foreign-exchange analyst at China Merchants Bank Co., the country’s sixth largest lender. “Currency appreciation would be the last tool the central bank will use to control inflation.”
Twelve-month non-deliverable yuan forwards traded at 6.6315 per dollar as of 11:38 a.m. in Hong Kong, from 6.6285 late last week. The contracts indicate brokerages are betting the currency will gain 2.9 percent in the coming year from today’s spot rate of 6.8268.
Exports climbed 17.7 percent in December, the first increase in 14 months, customs bureau data showed on Jan. 10. China reintroduced the exchange-rate link in July 2008 to help exporters, after allowing its currency to climb 21 percent in the previous three years.
The premium to buy yuan call options against the dollar over puts, represented by a negative number, is the biggest in 21 months, as inflation forces the central bank to push interest rates higher.
“Traders are betting China will soon de-peg the yuan,” said Thomas Harr, a senior currency strategist in Singapore at Standard Chartered Plc, which was approved as an interbank bond- market maker in China this month. “On the medium term, interest rate hikes from China or elsewhere in Asia are supportive of Asian currencies because they will trigger even more capital inflows.”
The dollar’s one-year, 25-delta risk-reversal rate against the yuan was a negative 1.85 percentage points. A negative reading indicates there’s more demand for yuan calls, or the right to buy the currency, than puts, or the option to sell the currency. The rate reached minus 1.95 points on Jan. 13, the lowest closing level since April 1, 2008.
--Judy Chen. With assistance from Zijing Wu in London. Editor: Sandy Hendry
January 25, 2010, 06:38 AM EST
More From Businessweek
Jan. 25 (Bloomberg) -- Yuan forwards were little changed on speculation the government will cap currency appreciation this year to minimize the impact on exporters.
Commerce Minister Chen Deming said on Jan. 19 that a stable yuan is in the interest of the global economy. Goldman Sachs Group Inc. Chief Economist Jim O’Neill said in an interview on Jan. 23 that China will probably let its currency appreciate by at least 5 percent in a one-time move to curb inflationary pressures.
“The one-off revaluation is impossible because that will devastate exporters who are just about to recover,” said Liu Dongliang, a Shenzhen-based foreign-exchange analyst at China Merchants Bank Co., the country’s sixth largest lender. “Currency appreciation would be the last tool the central bank will use to control inflation.”
Twelve-month non-deliverable yuan forwards traded at 6.6315 per dollar as of 11:38 a.m. in Hong Kong, from 6.6285 late last week. The contracts indicate brokerages are betting the currency will gain 2.9 percent in the coming year from today’s spot rate of 6.8268.
Exports climbed 17.7 percent in December, the first increase in 14 months, customs bureau data showed on Jan. 10. China reintroduced the exchange-rate link in July 2008 to help exporters, after allowing its currency to climb 21 percent in the previous three years.
The premium to buy yuan call options against the dollar over puts, represented by a negative number, is the biggest in 21 months, as inflation forces the central bank to push interest rates higher.
“Traders are betting China will soon de-peg the yuan,” said Thomas Harr, a senior currency strategist in Singapore at Standard Chartered Plc, which was approved as an interbank bond- market maker in China this month. “On the medium term, interest rate hikes from China or elsewhere in Asia are supportive of Asian currencies because they will trigger even more capital inflows.”
The dollar’s one-year, 25-delta risk-reversal rate against the yuan was a negative 1.85 percentage points. A negative reading indicates there’s more demand for yuan calls, or the right to buy the currency, than puts, or the option to sell the currency. The rate reached minus 1.95 points on Jan. 13, the lowest closing level since April 1, 2008.
--Judy Chen. With assistance from Zijing Wu in London. Editor: Sandy Hendry