Despite the central bank denying such plans, China stocks rally on hopes of a stronger currency
While the Group of Seven's statement on world exchange rates at the weekend deviated little from its previous communique and market expectations, it did appear to more directly target China in its calls for more flexible exchange rates this time, according to analysts.
Combined with a report in a mainland newspaper saying China could revalue its currency as early as next month, this led to a significant widening in the one-year yuan non-deliverable forwards early yesterday.
China-related stocks surged as investors banked on hopes of a yuan revaluation, with the oil and petrochemical sectors racking up the biggest gains.
A spokesman for the People's Bank of China denied the report in the semi-official China Business Post, telling Reuters it was 'groundless' and 'not accurate', but the stock market paid little attention with the H-share index closing only four points off the day's high. Yuan forwards remained strong throughout most of the Asian trading day, but fell back late in the session.
'Despite the denial, people still believe the change to the currency peg is unavoidable, it's just a question of timing,' said the chief dealer at an Asian bank in Hong Kong. 'The Europeans are obviously not happy with the strength in the euro and the G7 statement suggests that the pressure will gradually shift to Asian currencies, especially the [yuan].'
In late afternoon trading, the one-year forward discount was bid at 3,900 compared with 3,750 on Friday. It widened to 4,250 earlier in the session.
