The yuan advanced on its first day of trade following a one-week holiday, after the dollar fell as the Federal Reserve vowed to maintain low borrowing costs.
The Dollar Index (DXY) slid 1.7 percent last week as the Fed pledged to keep interest rates “extremely low” through 2014, preserving the emerging-market yield advantage over Treasuries. Chinese financial markets were closed from Jan. 23 to Jan. 27 for the Lunar New Year holidays. World Trade Organization Director-General Pascal Lamy said last week the yuan is undervalued, while Xinhua News Agency reported that Li Daokui, adviser to the People’s Bank of China, said there’s signs the currency is near its equilibrium level.
“The yuan’s gain today reflects more on the weakness of the greenback in the past week, rather than China reacting to political pressure on appreciation,” said Kenix Lai, a Hong Kong-based currency analyst at Bank of East Asia Ltd. “Investors are awaiting for a new set of economic data this week to see where China’s policy will be heading.”
The yuan gained 0.13 percent to close at 6.3310 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency rose as much as 0.43 percent earlier, the biggest advance since Dec. 16. The People’s Bank of China raised the reference rate by 0.13 percent to 6.3056, the strongest level since Jan. 4. The currency is allowed to trade as much as 0.5 percent on either side of the fixing.
In Hong Kong’s offshore market, the yuan retreated 0.32 percent to 6.3065, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards dropped 0.25 percent to 6.2790, a 0.8 percent premium to the onshore spot rate.
China is scheduled to release a manufacturing purchasing managers’ index for January on Feb. 1. Economists surveyed by Bloomberg estimate the gauge will be 49.6, compared with 50.3 in December. Fifty is the dividing line between contraction and expansion.
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