The yuan strengthened the most in a month as China’s efforts to free up its domestic markets to global investors spurred speculation the currency will advance.
Now is a good time to open up the capital account to speed up the internationalization of the yuan, the Financial News reported today, citing Xu Zhong, deputy director of the financial markets department of the People’s Bank of China. China will work to accelerate approvals of qualified foreign institutional investors looking to buy local securities, according to a statement on the State Administration of Foreign Exchange’s website yesterday.
“China is trying to take advantage of a more stable currency and more balanced external position to allow the portfolio flows,” said Dariusz Kowalczyk, a strategist at Credit Agricole CIB in Hong Kong. “It will also try to bring in more foreign capital, via bonds and stocks, to support its slowing economy, and to make more of an effort to encourage foreign central banks to buy the yuan.”
The yuan advanced 0.08 percent to close at 6.3231 per dollar in Shanghai, according to the China Foreign Exchange Trade System. That’s the biggest gain since April 17. The People’s Bank of China set the reference rate 0.06 percent stronger at 6.3077. The currency is allowed to trade as much as 1 percent on either side of the daily fixing.
In Hong Kong’s offshore market, the yuan climbed 0.05 percent to 6.3233. Twelve-month non-deliverable forwards rose 0.14 percent, the most since April 2, to 6.3795, according to data compiled by Bloomberg. The contracts were at a 0.9 percent discount to the onshore spot rate.
One-month implied volatility, a measure of exchange-rate swings used to price options, dropped 10 basis points, or 0.10 percentage point, to 2.10 percent.
The Conference Board China Center for Economics and Business’s leading index rose at the same pace in April from the month before as it did in March, offering investors some comfort the world’s second-biggest economy may avoid a sharp slowdown. The gauge increased 0.8 percent to 232.4, the board said in an e-mailed statement today, citing a preliminary reading.