China’s yuan retreated from a 17- year high on speculation importers boosted dollar buying to take advantage of the local currency’s recent gains.
Companies due to make overseas payments probably stepped up purchases of the greenback after the yuan gained 1.2 percent last quarter, the best performance among Asia’s 10 most-traded currencies. A stronger local currency reduces the cost of imports. China’s financial markets were shut during the first week of this month for the National Day holidays. The yuan also dropped today as the nation’s shares pared an advance.
“Importers are buying the dollar and that puts some pressure on the yuan,” said Carlos Cheung, a foreign-exchange dealer at Bank of Communications Ltd. in Hong Kong. “The financial market is still volatile at the moment and there’s a lack of liquidity as investors are cautious.”
The yuan dropped 0.11 percent to 6.3553 per dollar as of 11:52 a.m. in Shanghai, according to the China Foreign Exchange Trade System. The currency touched 6.3375 earlier, its strongest level since the country unified the official and market exchange rates at the end of 1993. The Shanghai Composite Index of shares pared gains to 0.7 percent from 2.88 percent earlier.
In Hong Kong’s offshore market, the yuan fell 0.12 percent to 6.3975, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards were little changed at 6.3480, a 0.1 percent premium to the onshore spot rate.
Record Fixing
The People Bank’s of China set the daily reference rate 0.16 percent higher at 6.3483 per dollar, the strongest level since July 2005. The yuan is allowed to fluctuate 0.5 percent on either side of the daily fixing.
The nation seeks to steer clear of “systemic shocks” that rapid yuan gains may cause and will likely take “considerable time” to further liberalize the exchange-rate regime, Wall Street Journal reported on its website today, citing former central bank adviser Fan Gang.
China’s economy may expand 9.4 percent this year, the Economic Information Daily reported today, citing Wang Wenbo, a deputy director at the National Bureau of Statistics. The world’s second-biggest economy grew 10.4 percent last year. The MSCI Asia-Pacific Index of shares rose after Germany and France set an end-of-month deadline for a breakthrough in handling the European sovereign-debt crisis.
“As concerns over Europe’s debt crisis ease, investors are again looking for non-dollar assets,” said Banny Lam, a Hong Kong-based economist at CCB International Securities Ltd., a unit of China’s second-largest lender. “The yuan could be one of the best choices, given its appreciation prospects and the nation’s strong growth.”
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