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The yuan yesterday rose to a three-week high against the US dollar on speculation China will escape the worst of the global credit crisis that drove Lehman Brothers Holdings Inc into bankruptcy.
China is confident it will be able to maintain the stability of its financial markets, People's Bank of China Deputy Governor Su Ning said at the weekend. The yuan, which the central bank manages against a basket of currencies, also gained as nine of the 10 most-active Asian currencies strengthened versus the US dollar yesterday.
"The yuan's recent moves are highly related to the dollar story," said Liu Dongliang, a Shenzhen-based foreign-exchange analyst at China Merchants Bank, the country's sixth-largest lender. "The government is striving to maintain the exchange rate's stability amid the turmoil."
The yuan rose 0.07 percent to 6.8300 versus the dollar in Shanghai, the highest close since September 1, according to the China Foreign Exchange Trade System. It has gained 6.9 percent this year, the best performer of the 10 most-traded Asian currencies excluding the yen.
"The direct impact of the subprime crisis is currently limited," Su said at a financial conference in Shanghai on September 20. "China will be highly alert to the negative effects of unstable global financial markets and decreasing overseas demand."
President Hu Jintao told his US counterpart George W. Bush yesterday that he hoped to see "fast results" from the US government's measures to stabilize the economy, according to a statement posted on the Website of China's Foreign Ministry.
The US Dollar Index traded on ICE futures in New York, which tracks the currency against those of six trading partners, fell for a fourth day, to 77.43.
Government bonds dropped on speculation the market rally last week following the central bank's cut to the one-year lending rate was excessive.
The yields on 10-year bonds slid 28 basis points, the biggest weekly decline this year, according to an index compiled by China's biggest debt clearing house. The debt rally started after the central bank trimmed the one-year lending rate by 27 basis points on September 15 to 7.2 percent to help the economy.
"Investors over-used the good news last week," said Jiang Chao, a fixed-income analyst at Guotai Junan Securities Co in Shanghai, China's largest brokerage by assets. "The market will see adjustments since there is no more good news this week to bolster the rally."
Jiang said the overall bullish sentiment will continue until the first quarter next year even though there will be short-term corrections.
The yield on the 4.5 percent bond due May 2038 climbed 4.7 basis points to 4.25 percent, according to the China Interbank Bond Market. The price of the security dropped 0.82 per 100 yuan face amount to 105.11.
Tighter funding between banks may also push the yields higher this week, said Yang Yongguang, a fixed-income analyst with Guo Hai Securities Co in Shenzhen. "Brokerage firms have a harder time borrowing money now," he said.
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