A measure of expected price swings in the yuan fell to the lowest level in about five months as confidence grew Asia’s biggest economy is stabilizing.
Easing deflation in factory-gate prices, an increase in foreign exchange reserves and an expansion in manufacturing activity are among recent economic indicators showing signs of an improvement.
Chinese Premier Li Keqiang (李克強) was cited as saying by China Central Television the nation will promote supply-side reforms to ensure growth is in a reasonable range even as he flagged downward pressures. Options traders betting on yuan declines are not seeing the kind of weakening they had hoped for and might be cutting losses, according to Cliff Tan (陳仲華), head of global markets research at Bank of Tokyo-Mitsubishi UFJ Ltd.
“Recent economic data suggest the worst is behind us for now after a series of monetary, fiscal stimulus packages,” said Andy Ji, a Singapore-based foreign exchange strategist and economist at Commonwealth Bank of Australia. “Looking ahead, the pick up in growth activity may further boost sentiment on the yuan.”
One-month implied volatility for the yuan dropped 9 basis points to 4.41 percent as of 12:20pm in Shanghai, the lowest since November last year.
The currency traded onshore slid 0.14 percent to 6.4670 to a US dollar after three days of increases, according to China Foreign Exchange Trade System prices. The yuan retreated 0.1 percent in Hong Kong’s offshore market to 6.4757.
Neither a large yuan depreciation nor a hard landing in the Chinese economy is expected, Andrew Fennell, sovereign ratings director at Fitch Ratings, said at a conference in Shanghai yesterday.
The People’s Bank of China raised the yuan’s daily reference rate by 0.05 percent to 6.4616 per US dollar after the Bloomberg Dollar Spot Index slumped to its lowest level in more than nine months on Monday.
A Bloomberg replica of the CFETS RMB Index, which tracks the yuan against 13 exchange rates, fell to 97.4.
The central bank auctioned 60 billion yuan (US$9.3 billion) of seven-day reverse-repurchase agreements yesterday, matching the amount of such contracts maturing.
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