Yuan soars after Central Bank push

China’s yuan advanced to a 19-year high after the central bank raised the currency’s reference rate by the most in more than six months.

The People’s Bank of China set the fixing 0.2 percent stronger, the most since Oct. 15, to 6.2082 per dollar. Morgan Stanley lifted its year-end forecast to 6.1 from 6.3 this week, citing prospects for a widening in the trading band from the current 1 percent and a larger base of market participants. The Federal Reserve said it will keep buying $85 billion of bonds a month while standing ready to adjust purchases as economic conditions evolve. China’s financial markets reopened today after the three-day Labor Day holiday.

“Investors are expecting China will widen the band, which means the yuan will appreciate faster,” said Daniel Chan, a Hong Kong-based executive vice president at Glory Sky Global Markets. “The dollar is likely to stay weak based on the Fed statement, which continues to drive inflows to higher-yielding currencies such as the yuan.”

The yuan advanced 0.17 percent to 6.1543 per dollar from April 26 as of 10:11 a.m. in Shanghai, according to the China Foreign Exchange Trade System. It touched 6.1540 earlier, the strongest level since the government unified the official and market exchange rates at the end of 1993.

The spot is allowed to diverge a maximum 1 percent from the daily fixing, which was set today at the highest since a dollar peg ended in July 2005. Speculation for a change was heightened on April 18 when PBOC Deputy Governor Yi Gang said the band would be widened “in the near future.” The last revision was announced on April 14, 2012 when it was doubled.

Bloomberg