Yuan forwards firmed up for the ninth day as speculation mounted that the Chinese central bank will soon scrap a 21-month-old peg to the dollar in its efforts to limit inflation within the country and also to resolve simmering tensions about currency manipulation around the world.
The United States came close to labelling China as a currency manipulator and only urgent diplomacy compelled it to postpone release of a semi-annual treasury department report, due on 16 April, which analyses foreign exchange policies of partner nations.
Twelve-month non-deliverable forwards rose to an 11-week high after traders said the People's Bank of China was likely to sell three-year bills tomorrow to drain cash from the financial system. This will be the bank's first such sale since 2008.
Market observers say the sale may also be a prelude to the first increase in benchmark interest rates for more than two years.
Twelve-month non-deliverable forwards traded at 6.6328 per dollar as of 3:53 p.m. in Hong Kong, from 6.6346, according to Bloomberg data. The rates reflect positions that the currency will climb 2.9 per cent from the spot rate of 6.8254.
Beijing allows the yuan to trade by up to 0.5 per cent against the dollar either side of a daily reference rate set by the central bank, which was fixed at 6.8259 today.
Inflation was at a 16-month high of 2.7 per cent in February.