Shanghai: China's yuan surged to the strongest level in 17 years on speculation policymakers will tolerate appreciation to stem capital outflows.
The currency advanced for a second day as the central bank set the reference rate 0.07 per cent higher at 6.3167 per dollar. A depreciation of the yuan may fuel outflows of capital, Yi Xianrong, a researcher at the Institute of Finance and Banking that is affiliated to the Chinese Academy of Social Sciences, wrote in a commentary in China Daily yesterday.
"The fixing shows the central bank's determination to push forward with appreciation," said Liu Dongliang, a senior analyst in Shenzhen at China Merchants Bank Co, the nation's sixth-biggest lender. "The market has fully taken the signals sent through the fixings."
Contracts
The yuan strengthened 0.26 per cent to 6.3198 per dollar as of 4:30pm in Shanghai, according to the China Foreign Exchange Trade System. It touched 6.3160 earlier yesterday, the strongest level since the country unified the official and market exchange rates at the end of 1993.
Twelve-month non-deliverable forwards traded at 6.3815, from 6.3835 on Dec-ember 23. The contracts traded at a 0.97 per cent discount to the onshore spot rate, according to data compiled by Bloomberg. Hong Kong's offshore market was closed for a public holiday yesterday.
Almost $28 billion (Dh102.76 billion) of hot money flowed out of China in November, Chen Lan and Jiang Chao, analysts at Guotai Junan Securities Co, wrote in a report released on Sunday. Global risk aversion may continue to drive speculative capital out of the nation "in the short term," they wrote.
The money-market rate jumped to the highest level in more than four weeks on speculation banks are hoarding cash to meet end-of-year capital requirements and ahead of the Chinese New Year that falls on January 23.
"There is strong demand for cash as the year-end draws near," said Wang Huane, a bond analyst at Qilu Bank Co. in Jinan of the eastern Shandong province. "Cash demand will be even higher next month before the Lunar New Year holiday."
Highest level
The seven-day repurchase rate rose 45 basis points, or 0.45 percentage point, to 4.18 per cent in Shanghai, the highest level since November 24, according to a weighted average rate compiled by the National Interbank Funding Center.
The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, climbed three basis points to 2.77 per cent, according to data compiled by Bloomberg.
The yield on the 3.83 per cent government bonds due November 2017 was steady at 3.39 per cent, according to quotes provided by the Interbank Funding Center.
US Currency: Dollar maintains losses
The dollar maintained losses from last week against most of its major counterparts on speculation a report today will show US consumer confidence rose to the highest since July, damping demand for haven assets.
The euro held a drop against the yen before Italy auctions as much as €20 billion (Dh96 billion) of bills and bonds this week amid concern the region's debt crisis is worsening. The Australian and New Zealand dollars traded within 0.6 per cent of two-week highs as Japanese stocks rose.
"Excessive pessimism has receded at the end of the year, and what we're seeing is some unwinding of safe-haven buying of currencies like the dollar and yen," said Kengo Suzuki, manager of the foreign-bond department in Tokyo at Mizuho Securities Co., a unit of Japan's third-biggest listed bank by market value. "The US economy is resilient."
The Dollar Index, which tracks the greenback against the currencies of six major US trading partners, fell 0.2 per cent last week.
