Yuan forwards near two-month low on signs China to limit gains

China’s yuan forwards traded near a two-month low on speculation the central bank will curb currency appreciation next year to help exports recover from a slump. Government bonds were little changed.

The commerce ministry said last week overseas sales, which declined for a 13 month in November, will take “considerable time” to return to levels recorded before the global financial crisis. The central bank has limited daily changes in the reference rate for yuan spot trading to no more than 0.01 per cent since Ocober 9, signaling its determination to rebuff foreign calls for a stronger currency.

“A stable yuan policy is a prerequisite for export recovery,” said Liu Dongliang, a Shenzhen-based foreign- exchange analyst at China Merchants Bank Co, the country’s sixth-largest lender. “There is no sign that a resumption of appreciation will start in the next three months.”

Twelve-month non-deliverable forwards were little changed at 6.6975 per dollar as of 5:30 pm in Hong Kong, signaling a 2 per cent advance in one year, according to data compiled by Bloomberg. They touched 6.7048 on December 18, the lowest since October 12. In the spot market, the yuan was stable at 6.8285, according to China Foreign Exchange Trade System.

The currency, which has been effectively pegged against the dollar since July 2008, may strengthen to 6.66 by the end of 2010, according to the median estimate of analysts surveyed by Bloomberg.

The yuan is allowed to trade by up to 0.5 per cent against the dollar either side of the reference rate, which was set at 6.8283 today.

Government bonds were little changed before the central bank sells one-year bills tomorrow in open-market operations.

The People’s Bank of China has kept the yield on its one- year bill unchanged at 1.7605 per cent for 16 weeks, in line with its “moderately loose” monetary policy. The government said it will continue existing fiscal and monetary policies next year after an annual economic planning meeting ended December 7.

“It’s been quiet on the policy side,” said Zhang Lan, a bond analyst at Bank of Nanjing Co, a Chinese lender partly owned by BNP Paribas SA. “Uncertainties remain as to whether the central bank will let yields rise to drain the money supply after the Chinese New Year in mid-February.”

The yield on the 2.9 per cent note due December 2014 was little changed at 2.97 per cent, and the price of the security was 99.69 per 100 yuan face amount, according to the National Interbank Funding Center.