Off­shore yuan gains as PBOC raises fix­ing

The Pak Banker - - COMPANIES/BOSS -

The off­shore yuan rose for a sec­ond day as China's cen­tral bank in­creased its daily ref­er­ence rate by the most in a week amid a de­cline in the dol­lar.

The Peo­ple's Bank of China strength­ened its fix­ing for the first time in four days, af­ter a gauge of dol­lar strength dropped the most in a week Mon­day. This fol­lowed data show­ing U.S. per­sonal spend­ing barely rose last month, which spurred spec­u­la­tion the Fed­eral Re­serve will hold off from in­creas­ing in­ter­est rates any­time soon.

"The pres­sures for the Fed to raise bor­row­ing costs have eased due to the in­fla­tion data, and that's sup­port­ing the yuan today," said Banny Lam, Hong Kong-based co­head of re­search at Agri­cul­tural Bank of China In­ter­na­tional Se­cu­ri­ties Ltd., who ex­pects the U.S. to act as soon as in June. "The yuan will likely fluc­tu­ate against the green­back in the near term, and weaken af­ter the Fed in­creases in­ter­est rates. But it won't drop sharply as China's econ­omy will show signs of im­prove­ment at that point."

The yuan traded in Hong Kong rose 0.02 per­cent to 6.5159 a dol­lar as of 5:14 p.m. in Hong Kong, ex­tend­ing a two-day ad­vance to 0.15 per­cent, prices com­piled by Bloomberg show. It rose as much as 0.14 per­cent ear­lier. The cur­rency in Shang­hai ad­vanced 0.02 per­cent to 6.5095, ac­cord­ing to China For­eign Ex­change Trade Sys­tem prices. The PBOC boosted its fix­ing, which lim­its on­shore moves to 2 per­cent on ei­ther side, by 0.26 per­cent to 6.5060. That's the big­gest in­crease since March 18.China will step up in­spec­tion and pun­ish­ment of vi­o­la­tions that in­ter­fere with the cur­rency mar­ket, a State Ad­min­is­tra­tion at For­eign Ex­change was cited as say­ing by Xin­hua News Agency, adding that there is no need to ad­just in­di­vid­u­als' an­nual for- eign-ex­change pur­chase quo­tas yet.

Devel­op­ment of the off­shore mar­ket chal­lenges the yuan's ex­change-rate for­ma­tion and in­de­pen­dence of mone­tary pol­icy, Zhou Chengjun, an of­fi­cial at the PBOC's mone­tary pol­icy depart­ment, said at a con­fer­ence in Bei­jing on Tues­day. Daily av­er­age trad­ing vol­ume of the cur­rency off­shore is about $240-250 bil­lion, he said. That com­pares with a daily av­er­age of $18.9 bil­lion in Shang­hai's spot mar­ket.

Traders put the prob­a­bil­ity of the Fed rais­ing rates at its June meet­ing at 38 per­cent, down from 42 per­cent a week ago, ac­cord­ing to data com­piled by Bloomberg. A re­port over the week­end showed China's in­dus­trial prof­its climbed for the first time in eight months in the Jan­uary-Fe­bru­ary pe­riod, boost­ing spec­u­la­tion the na­tion's econ­omy may be sta­bi­liz­ing.

In the money mar­kets, the PBOC in­jected 60 bil­lion yuan ($9.2 bil­lion) via seven-day re­verse-re­pur­chase agree­ments on Tues­day. The seven-day re­pur­chase rate, a gauge of in­ter­bank fund­ing avail­abil­ity, dropped one ba­sis point to 2.31 per­cent, ac­cord­ing to Na­tional In­ter­bank Fund­ing Cen­ter prices. The yield on gov­ern­ment notes due Jan­uary 2026 fell three ba­sis points to 2.86 per­cent.

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