Yuan forward contracts jumped the most since January 2012 after China’s trade surplus almost doubled and its central bank boosted the currency’s daily reference rate.
Twelve-month non-deliverable forward contracts (NDFs) strengthened 0.47 percent to 6.2154 per US dollar as of 4:39pm yesterday in Hong Kong, according to data compiled by Bloomberg.
The People’s Bank of China (PBOC) raised its yuan fixing by 0.22 percent, limiting the scope for declines in Asia’s worst-performing currency this year.
The spot rate gained 0.16 percent to close at 6.2404 in Shanghai, trimming this year’s loss to 3 percent, China Foreign Exchange Trade System prices showed.
On Sunday, Chinese government data showed exports rose more than economists forecast for last month and the trade surplus widened to a five-year high.
The figures brightened the outlook for the currency after policymakers guided a weakening of the yuan in the first four months this year to curb speculation that the exchange rate was a one-way bet.
The currency had almost uninterrupted annual gains from the end of a US dollar peg in 2005 through last year.
“Yuan NDFs rose sharply after the currency’s reference rate was fixed much stronger than expected for a second consecutive day,” said Irene Cheung (張雅怡), a Singapore-based strategist at Australia & New Zealand Banking Group Ltd. “This may signal the PBOC is getting more comfortable with the state of the economy and may already know that Friday’s data will be quite positive.”
China’s exports climbed 7 percent from a year earlier last month, compared with 0.9 percent growth in the previous month and the median estimate of a 6.7 percent gain in a Bloomberg News survey. That left a trade surplus of US$35.9 billion, almost double the figure for April, as imports unexpectedly fell.
“The strong fixing of the yuan is boosting sentiment,” said Frances Cheung (張淑嫻), a Hong Kong-based strategist at Credit Agricole CIB. “In addition, the weekend numbers seem to suggest that the economy is bottoming out. The trade surplus points to continued inflows.”
The yuan was 1.5 percent weaker than yesterday’s reference rate of 6.1485 per US dollar, within the 2 percent limit of a trading band that is managed by the PBOC.
In Hong Kong’s offshore market, the yuan strengthened 0.22 percent yesterday to 6.2309 per US dollar, data compiled by Bloomberg show. The yuan is expected to appreciate to 6.10 in Shanghai by the end of this year, according to the median forecast in a Bloomberg survey.
ING Group NV cut its year-end yuan forecast to 6.25 per US dollar from 6.22, Tim Condon, head of Asian research in Singapore, said in a research note yesterday.
“The PBOC is serious when it claims that the yuan is subject to greater two-way risk,” he wrote.
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