China Yuan Advances to One-Week High on Bernanke's Easing Signal - Businessweek

China’s yuan rose to a one-week high after Federal Reserve Chairman Ben S. Bernanke signaled the possibility of further monetary easing, supporting the outlook for Asian economic growth.

The People’s Bank of China raised the currency’s reference rate 0.04 percent to 6.3140 per dollar, the strongest level since July 4. China’s labor situation will become more “severe,” according to a statement on the government’s website yesterday from Premier Wen Jiabao, while State Council may meet today to set tone for monetary and fiscal policies as China Securities Journal reported on July 16.

“The potential of more U.S. monetary easing is supporting the yuan a bit,” said Stella Lee, Hong Kong-based president at Success Futures & Foreign Exchange Ltd. “However, investors remain cautious as there aren’t clear signals China is returning to its strong growth track.”

The yuan strengthened 0.04 percent to 6.3702 per dollar in Shanghai, according to the China Foreign Exchange Trade System. It touched 6.3681 earlier, the highest level since July 11. The currency is allowed to trade as much as 1 percent on either side of the central bank’s daily fixing. One-month implied volatility, a measure of exchange-rate swings used to price options, dropped five basis points, or 0.05 percentage point, to 1.35 percent. That’s the lowest level since August 2010.

In Hong Kong’s offshore market, the yuan advanced 0.06 percent to 6.3720. Twelve-month non-deliverable forwards slipped 0.02 percent to 6.4165, a 0.66 percent discount to the onshore spot rate, according to data compiled by Bloomberg. The contracts touched 6.4123 earlier, the strongest since July 6.

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net