Yuan Set for Weekly Gain on Oil Price Rise, Manufacturing Health

China’s yuan was poised for a third weekly gain as oil prices surged and a report signaled exporters are withstanding the currency’s appreciation.

Crude prices in New York surged to $107.65 a barrel, adding to pressure on authorities to seek a stronger yuan to reduce import costs. Manufacturing growth accelerated for the first time in four months, easing concern that monetary tightening may lead to a sharp slowdown in the world’s second-biggest economy. China’s central bank set the reference rate 0.06 percent higher at 6.5527, the strongest level since July 2005.

“The move reflects continued need to fight imported inflation via currency appreciation as oil prices continue to climb,” said Dariusz Kowalczyk, a Hong Kong-based senior economist at Credit Agricole CIB. “China remains in a tightening mode and will use a variety of tools, including stronger currency, to bring price pressures under control.” Kowalczyk forecast the yuan to reach 6.3 per dollar by the end of this year.

The yuan gained 0.16 percent this week and rose 0.02 percent today to 6.5472 per dollar as of 10:00 a.m. in Shanghai, according to the China Foreign Exchange Trade System. The currency touched 6.546 today, the strongest level since the country unified official and market exchange rates at the end of 1993. In Hong Kong’s offshore market, the currency fell 0.02 percent to 6.5485.

Twelve-month non-deliverable forwards were little changed at 6.419 per dollar in Hong Kong, reflecting bets the currency will strengthen 2 percent from the onshore spot rate in a year, according to data compiled by Bloomberg. Group of 20 finance chiefs meeting in China yesterday held out the prospect of an enlarged global role for the yuan to encourage the government to free up a currency described by the U.S. as “substantially undervalued.”
Manufacturing Strength

The Purchasing Managers’ Index rose to 53.4 in March from 52.2 in February, the China Federation of Logistics and Purchasing said in a statement on its website today. The reading compared with the median forecast of 54 in a Bloomberg News survey of 17 economists.

Premier Wen Jiabao is seeking to restrain surging prices for homes and consumer goods while sustaining economic growth to create jobs. Inflation topped the government’s target in the first two months of this year and officials will boost interest rates again this quarter, according to all 20 economists in a Bloomberg News survey.

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