Tags: China | currency | economy | G-20

Yuan Gains for Second Straight Month on Signs China's Economy Rebounding

Friday, 30 August 2013 06:26 AM

China’s yuan completed its second straight monthly advance on signs growth in the world’s second-largest economy is picking up.

The Purchasing Managers’ Index will be 50.6 in August, compared with July’s 50.3, according to the median estimate in a Bloomberg survey before data due Sept. 1. Fifty is the dividing line between expansion and contraction. Data this month showed rebounds in exports and imports in July. The yuan has strengthened 1.8 percent this year and is the sole gainer among the 11 most-traded Asian currencies tracked by Bloomberg.

“Recent data demonstrate the economy is stabilizing, and that’s positive for the yuan,” said Nathan Chow, a Hong Kong-based economist at DBS Group Holdings Ltd. “China’s fundamentals remain intact and the government will continue to boost the global usage of the currency. That implies the exchange rate should be relatively strong.”

The yuan rose 0.15 percent in August, the most in three months, China Foreign Exchange Trade System prices show. The currency gained 0.02 percent today to 6.1195 per dollar in Shanghai. The People’s Bank of China cut its daily reference rate 0.03 percent to 6.1709 today. The spot rate can diverge a maximum of 1 percent on either side of the fixing.

Tapering, G-20

The Bloomberg Dollar Index rallied yesterday to the highest close since Aug. 1 as reports showed the U.S. economy grew more than estimated in the second quarter, bolstering the chance the Federal Reserve will soon reduce stimulus. The Fed will begin to slow its debt purchases at its Sept. 17-18 meeting, according to 65 percent of economists in a Bloomberg survey this month. Chinese President Xi Jinping will attend the Group of 20 summit in Russia’s St. Petersburg on Sept. 5-6.

“Fed tapering will slow the yuan’s gains but the currency will not depreciate significantly,” said Chow from DBS Group. “The yuan’s exchange rate is no longer a major international agenda, given its outperformance this year.”

In Hong Kong’s offshore market, the yuan dropped 0.08 percent this week, according to data compiled by Bloomberg. The spot rate climbed 0.03 percent today and 0.27 percent this month to 6.1161 per dollar. Twelve-month non-deliverable forwards rose 0.04 percent today to 6.2391, trading at a 1.9 percent discount to the onshore spot rate.

One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, declined 10 basis points, or 0.1 percentage point, to 1.08 percent this week. That’s a seventh straight week of decline.

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China's yuan completed its second straight monthly advance on signs growth in the world's second-largest economy is picking up.
Friday, 30 August 2013 06:26 AM
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