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Yuan Rises Most in Two Weeks on Fixing Rate, Dollar Weakness

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Yuan Rises Most in Two Weeks on Fixing Rate, Dollar Weakness

Sept. 2 (Bloomberg) -- The yuan rose the most in two weeks after the central bank fixed a stronger daily reference rate to reflect a decline in the U.S. dollar and data that showed stronger global economic growth.

The People’s Bank of China set the reference rate 0.18 percent higher at 6.8003 per dollar, the biggest increase since July 2. The Dollar Index, used by IntercontinentalExchange Inc. to track the greenback against the currencies of six major trading partners, dropped the most in six weeks yesterday after reports showed accelerating manufacturing in the U.S. and China.

The yuan rate is “more likely dollar-related and the fixing is now picking up a bit more of a correlation with the dollar,” said Robert Minikin, senior foreign-exchange strategist at Standard Chartered Plc in Hong Kong. “We expect the yuan to remain on its appreciation path but it will be very gradual this year. The pace will accelerate next year.”

The yuan rose 0.05 percent to 6.8084 per dollar at the 5:30 p.m. close in Shanghai, compared with 6.8115 yesterday, according to the China Foreign Exchange Trade System. The rate earlier rose 0.19 percent, the most in two weeks, to 6.7987. The currency is allowed to trade up to 0.5 percent either side of the daily fixing rate.

The twelve-month non-deliverable forward dropped 0.04 percent to 6.7104 a dollar, reflecting bets the currency will advance 1.5 percent, according to data compiled by Bloomberg.

Money Market

The central bank sold 13 billion yuan ($1.9 billion) of three-month bills today at a yield of 1.5704 percent, unchanged for the ninth straight sale. The authority has added a net 70 billion yuan of funds into the money market this week through open-market operations, the biggest injection in eight weeks.

China’s benchmark money-market rate dropped for the first time in eight days after a convertible bonds sale by the Industrial & Commercial Bank of China Ltd. The world’s largest lender by market value, sold 25 billion yuan of the securities Aug. 31.

“Borrowing demand for ordering the ICBC bonds has declined,” said Wang Yintao, a Shanghai-based money trader at Industrial Bank Co. “The interbank money rates will slide further as subscription funds return to the market tomorrow.”

The seven-day repurchase rate, which measures lending costs between banks, lost 47 basis points, the most since June 4, to 2.5 percent, according to a daily fixing rate published by the National Interbank Funding Center.

Government bonds were little changed. The yield on the 3.28 percent note due in August 2020 was at 3.23 percent, and the price of the security dropped 0.05 per 100 yuan face amount to 100.45.


“The interbank money rates will slide further as subscription funds return to the market tomorrow.”

That should make tomorrow interesting...

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