SF: Yuan Forwards Strengthen as Record June Exports Signal Recovery
July 12 (Bloomberg) -- Yuan forwards climbed for a third day after the government reported record exports for June and the largest trade surplus in eight months.
Overseas sales jumped 43.9 percent from a year earlier to $137.4 billion and the surplus more than doubled to an eight- month high of $20 billion, the customs bureau said July 10. The U.S. government stopped short of branding China a currency manipulator on July 8 and said the yuan "remains undervalued" after the nation ended a two-year peg to the dollar on June 19.
"China's trade number was pretty positive and there might be a bit of pressure from Washington for the yuan to appreciate at a faster pace," said Brian Jackson, a strategist at Royal Bank of Canada in Hong Kong. Yuan forwards "should see a bit of that" appreciation pressure this week, he added.
The 12-month non-deliverable forward climbed 0.05 percent to 6.6590 per dollar as of 5:30 p.m. in Hong Kong, according to data compiled by Bloomberg, signaling an appreciation of 1.7 percent from the yuan's spot rate of 6.7711. The currency has strengthened 0.8 percent since the peg ended.
China should expand the yuan's trading band and allow more exchange-rate flexibility, Sheng Zhaohui, a research official at the People's Bank of China wrote in the Financial News today.
U.S. Deficit
The U.S. will tomorrow release its May trade balance, which may show a deficit of $39 billion compared with a shortfall of $40.3 billion in April, according to a Bloomberg survey of economists. The gap with China grew to $19.3 billion in April from $16.9 billion the previous month, data on June 10 showed.
"The focus this week will be on China's large trade surplus and the large U.S. deficit with China, which may add to pressure for yuan appreciation," Jackson said.
China's benchmark money-market rate dropped by the most this month on speculation the central bank won't rein in supply of capital after banks extended fewer loans in June.
New yuan-denominated loans fell to 603.4 billion yuan ($89 billion), from 639.4 billion in May and 1.53 trillion in the same month last year, the central bank said yesterday. The median forecast in a Bloomberg survey was for 600 billion yuan.
"The loan number shows the PBOC may not seek any more tightening measures," said Liu Junyu, a Shenzhen-based bond analyst at China Merchants Bank Co., the country's fifth-largest lender by market value. "The PBOC's capital injections also help increase capital supply."
Money Markets
The seven-day repurchase rate, which measures interbank funding availability, declined 25 basis points to 2.07 percent, according to a daily fixing rate by the National Interbank Funding Center. That was the biggest drop since June 30.
The central bank pumped 105 billion yuan ($15.5 billion) into the financial system last week, a seventh weekly net injection, according to data compiled by Bloomberg.
Government bonds were little changed as the market is waiting for inflation data to be announced on July 15, according to Huang Yanhong, a fixed-income analyst at Bank of Nanjing Co., a Chinese lender partly owned by BNP Paribas SA.
The yield on the 1.77 percent treasury note due December 2013 was unchanged at 2.55 percent, according to the National Interbank Funding Center. A basis point is 0.01 percentage point.
