HONG KONG: China's currency steadied near a record high on Monday as investors took a breather after authorities promised wide-ranging reforms that lifted stock markets for a third consecutive day.
While currency markets in the mainland were relatively subdued, the offshore yuan that is traded in Hong Kong was poised to break a recent record as traders noted renewed interest in the currency.
The gap between the offshore and the onshore yuan - a rough gauge of investor expectations towards the Chinese currency - is nearing its widest since the start of the year, indicating that bullish expectations towards the currency have not faded despite a solid performance since the summer.
By midday, the yuan was trading at 6.0914 per dollar, slightly higher than Friday's close while the People's Bank of China fixed the yuan at 6.1332 per dollar.
"I think there is unprecedented market demand from non-leveraged investors such as companies and reserve managers which is driving this gap," said Stuart Oakley, head of Nomura's head of cash currency trading for Asia outside Japan.
Investors rewarded Beijing on Monday for a bold and wide-ranging reform plan, boosting stocks led by consumer goods shares seen as direct beneficiaries of the promised easing of China's long-standing one-child policy and efforts to boost consumption.
The spread between the offshore and onshore yuan widened to more than 180 pips, its widest since January 22.
Much of that gap has been driven by a rally in the offshore yuan while the onshore currency has been relatively subdued in a tiny range thanks to the relentless intervention by state-run banks -- likely at the behest of the central bank.
In another indicator of growing bullishness towards the Chinese currency, the People's Bank of China accumulated reserves exceeding $100 billion in the third quarter alone, an amount exceeding the Indonesian central bank's total reserves.
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