Chinese Yuan Jumps to 19-Year High

The yuan climbed to a 19-year high as the central bank set a record reference rate amid growing usage of the currency for worldwide trade and investment.

Global yuan payments increased 32.7 percent in March from the previous month and the currency ranked 13th in terms of international payments, Society for Worldwide Interbank Financial Telecommunication said today. Hong Kong Monetary Authority said today that value of trade settled in China's currency by the city's banks rose 45 percent from a year earlier in the first quarter to 830 billion yuan ($135 billion), while Australia's central bank announced plans yesterday to put about 5 percent of its foreign-exchange reserves in China.

“Australia's plan is very positive for the yuan as that suggests increasing demand,” said Banny Lam, the Hong Kong- based co-head of research at Agricultural Bank of China International Securities Ltd., a subsidiary of the nation's third-largest bank. “Capital inflows continue to be strong and band widening could happen as soon as this weekend. Yuan usage has been rising globally.”

The yuan climbed 0.12 percent to close at 6.1707 per dollar in Shanghai, according to the China Foreign Exchange Trade System. It touched 6.1694 earlier, the strongest level since the government unified the official and market exchange rates at the end of 1993. The currency was at a 0.96 percent premium to the People's Bank of China's reference rate, which was raised by 0.13 percent to 6.2300. The spot rate is allowed to diverge from the daily fixing by a maximum 1 percent.

The yuan's trading band against the dollar is likely to be widened around June, before the U.S.-China Strategic and Economic Dialogue in Washington during the week of July 8-12, Christy Tan, a foreign-exchange strategist in Singapore at Bank of America Merrill Lynch, wrote in a note yesterday. Australia & New Zealand Banking Group Ltd. said China won't relax limits on yuan moves for at least four months as capital inflows are keeping the currency near the top of its existing trading range.

Speculation for a change was heightened on April 18 when PBOC Deputy Governor Yi Gang said the band would be widened “in the near future.”

The last revision, which doubled the band, was announced on April 14, 2012 and the currency traded 0.1 percent weaker than the PBOC fixing on average in the month leading up to the move. The yuan has been at least 0.9 percent stronger than the reference rate every day since February.

Based on the previous adjustment, the central bank probably won't move “until the yuan is trading closer to the midpoint,” said Khoon Goh, a senior strategist at ANZ in Singapore.

Offshore Deposits

Hong Kong's total yuan deposits and certificates of deposits denominated in the currency increased by about 30 billion yuan during March, HKMA Chief Executive Norman Chan said today at press briefing in the city. Australia's planned shift in its reserves would lead to investment of as much as A$2.4 billion ($2.5 billion) in yuan and domestic government bonds, Commonwealth Bank of Australia estimated.

Bank of China (Hong Kong) Ltd. and FTSE Group will develop a new index that tracks the performance of offshore yuan- denominated bonds, King Au, chief executive officer of BOCHK Asset Management, said today at a press briefing in Hong Kong. There's growing demand for yuan fixed-income assets among global investors as the currency's volatility remains low, Au said at a press conference today.

One-month implied volatility in the onshore yuan, a measure of exchange-rate swings used to price options, rose seven basis points, or 0.07 percentage point, to 1.36 percent. Only the pegged Hong Kong dollar has a lower reading among 23 emerging- market currencies tracked by Bloomberg.

In Hong Kong's offshore market, the yuan rose 0.05 percent to 6.1680 per dollar, earlier touching a record 6.1648, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards advanced 0.1 percent to 6.2430, trading at a 1.2 percent discount to the spot rate in Shanghai.

Bloomberg News

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