The yuan climbed to a 19-year high as the central bank set arecord reference rate amid growing usage of the currency forworldwide trade and investment.

Global yuan payments increased 32.7 percent in March from theprevious month and the currency ranked 13th in terms ofinternational payments, Society for Worldwide Interbank FinancialTelecommunication said today. Hong Kong Monetary Authority saidtoday that value of trade settled in China's currency by the city'sbanks rose 45 percent from a year earlier in the first quarter to830 billion yuan ($135 billion), while Australia's central bankannounced plans yesterday to put about 5 percent of itsforeign-exchange reserves in China.

“Australia's plan is very positive for the yuan as that suggestsincreasing demand,” said Banny Lam, the Hong Kong- based co-head ofresearch at Agricultural Bank of China International SecuritiesLtd., a subsidiary of the nation's third-largest bank. “Capitalinflows continue to be strong and band widening could happen assoon as this weekend. Yuan usage has been rising globally.”

The yuan climbed 0.12 percent to close at 6.1707 per dollar inShanghai, according to the China Foreign Exchange Trade System. Ittouched 6.1694 earlier, the strongest level since the governmentunified the official and market exchange rates at the end of 1993.The currency was at a 0.96 percent premium to the People's Bank ofChina's reference rate, which was raised by 0.13 percent to 6.2300.The spot rate is allowed to diverge from the daily fixing by amaximum 1 percent.

The yuan's trading band against the dollar is likely to bewidened around June, before the U.S.-China Strategic and EconomicDialogue in Washington during the week of July 8-12, Christy Tan, aforeign-exchange strategist in Singapore at Bank of America MerrillLynch, wrote in a note yesterday. Australia & New ZealandBanking Group Ltd. said China won't relax limits on yuan moves forat least four months as capital inflows are keeping the currencynear the top of its existing trading range.

Speculation for a change was heightened on April 18 when PBOCDeputy Governor Yi Gang said the band would be widened “in the nearfuture.”

The last revision, which doubled the band, was announced onApril 14, 2012 and the currency traded 0.1 percent weaker than thePBOC fixing on average in the month leading up to the move. Theyuan has been at least 0.9 percent stronger than the reference rateevery day since February.

Based on the previous adjustment, the central bank probablywon't move “until the yuan is trading closer to the midpoint,” saidKhoon Goh, a senior strategist at ANZ in Singapore.

Offshore Deposits

Hong Kong's total yuan deposits and certificates of depositsdenominated in the currency increased by about 30 billion yuanduring March, HKMA Chief Executive Norman Chan said today at pressbriefing in the city. Australia's planned shift in its reserveswould lead to investment of as much as A$2.4 billion ($2.5 billion)in yuan and domestic government bonds, Commonwealth Bank ofAustralia estimated.

Bank of China (Hong Kong) Ltd. and FTSE Group will develop a newindex that tracks the performance of offshore yuan- denominatedbonds, King Au, chief executive officer of BOCHK Asset Management,said today at a press briefing in Hong Kong. There's growing demandfor yuan fixed-income assets among global investors as thecurrency's volatility remains low, Au said at a press conferencetoday.

One-month implied volatility in the onshore yuan, a measure ofexchange-rate swings used to price options, rose seven basispoints, or 0.07 percentage point, to 1.36 percent. Only the peggedHong Kong dollar has a lower reading among 23 emerging- marketcurrencies tracked by Bloomberg.

In Hong Kong's offshore market, the yuan rose 0.05 percent to6.1680 per dollar, earlier touching a record 6.1648, according todata compiled by Bloomberg. Twelve-month non-deliverable forwardsadvanced 0.1 percent to 6.2430, trading at a 1.2 percent discountto the spot rate in Shanghai.

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.