Yuan strengthens to two-month high as US rate concerns ease

[SHANGHAI] China's yuan strengthened to a two-month high, tracking an advance in Asian currencies, as minutes of the Federal Reserve's latest meeting indicated that officials are far from a consensus on raising interest rates.

The Chinese currency climbed 0.1 per cent to 6.6277 a US dollar as of 3:56 pm in Shanghai, China Foreign Exchange Trade System prices show. It rose to 6.6190 earlier, the strongest level since June 24. The offshore yuan was little changed, while a gauge of the dollar fell toward a three-month low.

Fed officials were divided over the urgency to increase borrowing costs, with some suggesting a delay because inflation remained benign and others wanting to act as the labour market nears full employment, according to minutes of the US central bank's July 26-27 meeting issued Wednesday.

The yuan's status as an investment currency will be enhanced by China's move to unveil a second cross-border equities link, HSBC Holdings Plc analysts wrote in a note.

"Traders see there's no fixed time for the next interest- rate hike in the US," said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd in Singapore.

"The Fed minutes show officials aren't concerned about inflation, driving the yuan higher along with other Asian currencies."

The People's Bank of China weakened its daily reference rate by 0.33 per cent to 6.6273 a US dollar.

A Bloomberg replica of the trade-weighted CFETS RMB Index, which measures the yuan against 13 currencies, fell 0.31 per cent to 94.20. That's the biggest decline in more than two weeks.

Chinese and Hong Kong regulators Tuesday unveiled details of a stock link between Shenzhen and Hong Kong. The connect program may start in about four months and won't be subject to overall caps on net purchases, though daily limits will apply.

In the debt markets, sovereign bonds resumed their advance after a two-day pause. The yield on notes due August 2026 declined one basis point to 2.69 per cent, according to National Interbank Funding Center prices.

The yield on the similar maturity benchmarkfell to 2.64 per cent on Monday, the lowest since Bloomberg began compiling ChinaBond data in 2006.

BLOOMBERG