Yuan Advances to Record High Thanks To the Reported Fastest Export Growth of China

Yuan, the major currency of China has increased the most in last six weeks after the Chinese Government published reports of the fastest export growth for the country in last 5 months. The Central Bank of China has also raised the reference rate, helping the currency to gain further. Such positive economic developments ensured that Yuan has climbed to a 19-year high. It is currently testing the upper limit of the permitted trading around the daily fixing of The People’s Bank of China.

China’s overseas sales have advanced by 11.6% more than what it was in October, 2011. In addition, the trade surplus of $32 billion was the largest for the country since January, 2009. According to the securities regulator, Chinese Government is going to increase the quota for Renminbi Qualified Foreign Institutional Investor (RQFII) program. This program allows Yuan that is raised overseas to be invested in the domestic markets and stock exchange of China.

According to Jonathan Cavenagh, who works as the currency strategist at Westpac Banking Corp., the Chinese authorities are now more confident as they are seeing better export growth for this big Asian powerhouse. He also stated that the RQFII encourage more buying of the Renminbi, however, selling prospects don’t seem to be very positive.

According to the Foreign Exchange Trade System in China, Yuan has strengthened itself by 0.26% and is around at 6.23 per USD in Shanghai. This marks the biggest ever growth for Yuan since 28th September, 2012. The current rate of Yuan is 1% stronger than the reference rate of China (This denotes the maximum allowable divergence). Hence, the reference rate also had to be increased by 0.15% to 6.2920. This marks the largest advance for China since 15thOctober.

In the offshore market of Hong Kong, Yuan has advanced by 0.13% to 6.2250. Incidentally, it had already touched the record mark of 6.2235. The implied velocity on onshore Yuan for 1 month time period (This marks the exchange rate swings which are used to price options) is currently steady at 1.6%. The Non-deliverable Forwards for twelve month period also advanced by 0.17% and finished at 6.3355 per Dollar. This marks a discount of 1.7% to the onshore spot rate.

A former advisor to the Central Bank of China, Yu Yongding stated that Yuan will face appreciation pressure in future as well, despite the current account of the nation being in more or less balance.

Zhang Monan, who works as a researcher at the State Information Center, stated that a lot of inflows have happened recently and that has helped Yuan to strengthen further. He also mentioned that the trade balance and exchange rate – both are currently at equilibrium levels.

The official decision of raising the quota for the Renminbi Qualified Foreign Institutional Investor program by $32 billion was declared by Securities Regulator’s chairman Guo Shuqing. He informed that all three – State Administration of Foreign Exchange, The China Securities Regulatory Commission and The Central Bank of China have agreed for this quota raise. It is to be seen now that how far Yuan consolidates before it experiences some loss again in the market and if that happens, how the Chinese authorities decide to combat that.