Bloomberg
Yuan Forwards Strengthen as China Highlights Benefits of Reform
August 02, 2010, 6:01 AM EDT
By Bloomberg News
Aug. 2 (Bloomberg) -- Yuan forwards rose the most in more than a week as the People’s Bank of China said the relaxation of exchange-rate controls have made it easier to manage the economy. Government bonds fell.
Twelve-month non-deliverable forwards advanced even after purchasing managers’ reports showed China’s manufacturing is cooling. The central bank said on June 19 it would allow the yuan to float against a currency basket, ending a two-year dollar peg. The reform aided in balancing international payments, boosting domestic demand and economic structuring, PBOC Deputy Governor Hu Xiaolian said in a July 30 statement.
“Slower economic growth won’t likely shift the direction of allowing gradual appreciation in the yuan as policy makers are not focusing on the pace of growth,” said Liu Dongliang, a Shenzhen-based analyst at China Merchants Bank Co., the country’s fifth-largest lender by market value. “The yuan rate will be more affected by movements of major global currencies in the near term.”
The 12-month contracts rose 0.2 percent to 6.6743 per dollar as of 5:30 p.m. in Hong Kong, according to data compiled by Bloomberg, reflecting bets the currency will strengthen 1.5 percent from the spot rate of 6.7742.
The Purchasing Managers’ Index fell to 51.2 from 52.1 in June, the Federation of Logistics and Purchasing said on its website yesterday. A reading above 50 indicates expansion. A PMI released today by HSBC Holdings Plc and Markit Economics fell to 49.4 from 50.4 in June.
Band ‘Appropriate’
China’s pace of growth will “definitely” slow as the size of the economy increases, Yi Gang, director of the State Administration of Foreign Exchange, said in an interview posted on the currency regulator’s website on July 30.
The daily yuan-dollar trading band is “appropriate,” PBOC’s Hu said in an interview today to the Century Weekly magazine. The band may be widened in the future, Hu was cited as saying.
The yuan is allowed to trade 0.5 percent on either side of a daily fixing rate set by the central bank, which was 6.7742 per dollar today.
Government bonds dropped on speculation investors favor stocks after the Shanghai Composite Index of shares had its biggest rally last month since July 2009. Concern inflation accelerated also damped demand, according to Hu Hangyu, a fixed- income analyst with Citic Securities Co, China’s biggest listed brokerage.
Stocks, Bonds
Consumer prices may have risen more than 3 percent in July from a year ago, compared with a gain of 2.9 percent for June, said Beijing-based Hu. The statistics bureau is due to release the data on Aug. 11.
“Bonds have been range-bound in recent weeks without much impact coming from slower manufacturing growth,” Hu said. “Stock gains have drawn funds away from the debt market.”
The yield on the 2.52 percent note due in July 2015 climbed two basis points to 2.65 percent, and the price of the security dropped 0.12 per 100 yuan face amount to 99.43, according to Bloomberg China Bond Fixings. A basis point is 0.01 percentage point.
The Shanghai Composite Index gained 1.3 percent today after rising 10 percent in July.
The seven-day repurchase rate, which measures funding availability between banks, slid four basis points to 1.64 percent, the lowest level since May 4, according to the daily fixing rate published by the National Interbank Funding Center.