Yuan forwards posted their biggest weekly gain in almost three months on mounting speculation China will loosen its grip on the currency after data showed an economic recovery is gathering pace. China should return to a managed-float exchange-rate system as quickly as possible, Nikkei English News reported today, citing an interview with Xia Bin, a member of the monetary policy committee at the People’s Bank of China.
The nation is under intensifying international pressure to allow the yuan to strengthen to offset global imbalances in trade. Assistant Commerce Minister Chen Jian said in Beijing today that the trade deficit in March will be “very small.” “The market is increasingly looking forward to some move in the next few months,” said David Cohen, an economist at Action Economics in Singapore. “Renewing appreciation would win China some relief in foreign pressure for a while.”
Twelve-month non-deliverable forwards advanced 0.2 percent to 6.6491 per dollar as of 5:30 p.m. in Hong Kong, reflecting bets the currency will strengthen 2.7 percent from the spot rate of 6.8256, according to data compiled by Bloomberg. The contracts climbed 0.4 percent this week, the best performance since Jan. 8.
China’s Purchasing Managers’ Index rose to a seasonally adjusted 55.1 in March from 52 in February, according to a report issued yesterday by Li & Fung Group, a Hong Kong-based company that releases data for the Federation of Logistics and Purchasing. Export Data Overseas sales probably climbed 26.7 percent last month from a year earlier, the survey showed. Profits of makers of household appliances, automobiles and cell phones in China may plunge by between 30 percent and 50 percent if the currency were to strengthen 3 percent, the Xinhua News Agency’s Economic Information Daily newspaper said today, citing the results of a “stress test.”
Government bonds declined this week on speculation increasing signs of recovery will prompt the central bank to withdraw economic stimulus policies, said Tang Guohui, a fixed- income analyst at Industrial Securities Co. in Shanghai. The yield on the 2.82 percent bond due in June 2016 rose four basis points this week to 3.08 percent, and the price of the security slid 0.22 per 100 yuan face amount to 98.54, according to the National Interbank Funding Center.
