July 02, 2010, 6:01 AM EDT
July 2 (Bloomberg) -- Yuan forwards completed a fourth weekly gain as the euro rallied against the dollar after Spain successfully sold bonds at an auction yesterday.
Twelve-month non-deliverable forwards jumped 0.2 percent to 6.6690 per dollar as of 5:37 p.m. in Hong Kong and strengthened 0.14 percent in the week, according to data compiled by Bloomberg. This reflects bets that the yuan will appreciate 1.5 percent in one year. The central bank set the reference rate for yuan trading at 6.7720, 0.2 percent stronger than yesterday’s fixing of 6.7858. Government bonds advanced.
“What has been happening in the past two weeks is a gradual move down in the dollar-yuan but the NDFs have not priced this in,” said Mirza Baig, a Singapore-based currency strategist at Deutsche Bank AG, the world’s largest foreign- exchange trader. “They are cheap.”
Spain yesterday sold 3.5 billion euros ($4.3 billion) of five-year bonds at an auction, reaching the maximum sale target. The Dollar Index tumbled 1.7 percent, the most since March 2009 after reports on U.S. manufacturing, employment and home sales signaled slower growth in the second half of 2010.
The yuan’s spot rate climbed 0.15 percent to 6.7711, according to the China Foreign Exchange Trading System. The currency has gained 0.28 percent in the week. The rate earlier reached 6.7696 a dollar, the strongest level since the end of 1993.
‘Limited Impact’
China’s central bank has allowed the currency to gain 0.8 percent since saying on June 19 that it was resuming a flexible exchange rate to curb inflation and rebalance the economy away from exports. The yuan is allowed to trade 0.5 percent on either side of the daily fixing.
Appreciation will have a limited effect on exports even if the yuan gains up to 3 percent over the next 12 months, Wu Qing, researcher at the Development Research Center of the State Council wrote in a commentary in the Shanghai Securities News today.
The yuan will appreciate “in the long run” and Hong Kong’s offshore yuan market can help manage the foreign-exchange risk, Joseph Yam，former head of the Hong Kong Monetary Authority, said in a radio interview today.
Bonds Gain
Government bonds rose this week as the benchmark money- market rate receded from a three-week high, reflecting the increased availability of cash at banks.
The seven-day repurchase rate, which measures lending costs between banks, slid 54 basis points this week to 2.61 percent, according to the daily fixing rate published by the National Interbank Funding Center. The rate rose to 3.16 percent at the end of last week, the highest level since June 2. A basis point is 0.01 percentage point.
“The tight money supply since May has eased, mainly helped by the central bank’s consecutive cash injections in open-market operations,” said Wang Fang, an analyst at Beijing-based Galaxy Securities Co. “People also had more confidence about the bond market than stocks.”
The People’s Bank of China has injected cash into the financial system for six consecutive weeks via open-market operations. The net inflows of 67 billion yuan ($9.9 billion) this week compared with 201 billion yuan last week.
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, has tumbled 6.7 percent this week after manufacturing growth slowed more than economists forecast in June, the Federation of Logistics and Purchasing said yesterday.
The yield on the 3.9 percent government note due in August 2014 fell three basis points to 2.49 percent, and the price of the security added 0.11 per 100 yuan face amount to 105.47, according to the funding center. For the week, the yield dropped eight basis points.
--Patricia Lui, Judy Chen, Belinda Cao. Editors: Sandy Hendry, James Regan
To contact the reporter on this story: Patricia Lui in Singapore at plui4@bloomberg.net; Judy Chen in Shanghai at xchen45@bloomberg.net; Belinda Cao in Beijing at lcao4@bloomberg.net.
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.
From Bloomberg Businessweek published on July 02, 2010, 6:01 AM EDT