Yuan Climbs to Six-Month High as Fixing Set Strongest Since 2010

China’s yuan rose to a six-month high as the central bank raised its fixing by the most in almost four years after the nation reported a record trade surplus.

The People’s Bank of China boosted the currency’s daily reference rate by 0.3 percent to 6.1520 per dollar, the biggest increase since November 2010 and the strongest level in four weeks. Exports exceeded imports by $49.84 billion in August, from the previous record of $47.30 billion in July. That was more than the median estimate for a $40 billion surplus in a Bloomberg survey. Overseas sales increased for a fifth month, while inward shipments unexpectedly fell.

The yuan strengthened 0.11 percent from Sept. 5 to 6.1343 per dollar as of 11:58 a.m. in Shanghai, China Foreign Exchange Trade System prices show. It touched 6.1317 earlier, the strongest level since March 11, and traded at a 0.3 percent premium to the fixing, within the 2 percent limit. The nation’s financial markets were closed yesterday for a holiday.

“The trade numbers came out to be much stronger than expected,” said Sim Moh Siong, a strategist at Bank of Singapore Ltd. China’s export recovery may have made the PBOC more tolerant of currency gains, he said.

Overseas sales rose 9.4 percent from a year earlier, following a 14.5 percent increase in July that was the largest since April 2013. Imports fell 2.4 percent, compared with the 3 percent gain forecast in the Bloomberg survey. The yuan may end the year at 6.14, according to the median estimate in a Bloomberg survey of analysts.

Turning Tide

The yuan has rallied 1.1 percent this quarter as China’s economy improved, paring this year’s loss to 1.3 percent, still Asia’s worst performance. The currency fell 2.6 percent in the first three months of 2014 as the PBOC weakened the fixing 0.9 percent to deter one-way strengthening bets following four consecutive years of gains. The monetary authority also doubled the yuan’s trading band to as much as 2 percent either side of the fixing in March.

The PBOC has now achieved its objectives of fending off speculative inflows related to appreciation and enabling the currency to trade more freely, said Andy Ji, a strategist at Commonwealth Bank of Australia in Singapore.

“The tide has already turned without being too obvious to the investors,” he said.

Stock Connect

The stronger fixing may also be a move to preempt inflows expected when the Shanghai-Hong Kong stock-connect program begins next month, Ji said. The link allows a net 23.5 billion yuan ($3.8 billion) of daily equity purchases between the two bourses.

In Hong Kong’s offshore market, the yuan declined 0.03 percent to 6.1383 per dollar after touching a six-month high of 6.1326 earlier, data compiled by Bloomberg show. Twelve-month non-deliverable forwards fell 0.02 percent to 6.2245, trading 1.4 percent weaker than the Shanghai spot rate.

One-month implied volatility in the onshore yuan, a measure of expected swings in the exchange rate used to price options, rose two basis points, or 0.02 percentage point, to 1.52 percent.