Yuan near record high on PBOC guid­ance

The Financial Daily - - MONEY & FOREX -

SHANG­HAI: The yuan closed up against the dol­lar and ap­proached its record trad­ing high on Wed­nes­day af­ter the Peo­ple's Bank of China fixed its daily mid-point near an all-time high.

The PBOC has fixed a slew of record high mid-points since the start of this year, in­di­cat­ing the gov­ern­ment may be al­low­ing the yuan's ex­change rate to ap­pre­ci­ate to help fight in­fla­tion, partly pro­pelled by high global com­mod­ity prices.

China is also in the early stages of an eco­nomic re­bal­anc­ing act that makes a stronger cur­rency an al­most in­evitable part of the mix, im­ply­ing sus­tained yuan ap­pre­ci­a­tion may come far sooner than many for­eign play­ers are ex­pect­ing.

"All signs point to more gains of the yuan's ex­change rate in the com­ing months, al­though the PBOC ap­pears to re­main cau­tious and is con­trol­ling the pace of ap­pre­ci­a­tion," said a dealer at a ma­jor Chinese state-owned bank in Bei­jing.

The trader and sev­eral oth­ers ex­pected the PBOC to let its fix­ing hit an­other record high late this week or early week.

The yuan closed at 6.5559 ver­sus the dol­lar, up from Tues­day's close of 6.5610 and within arm's reach of its record trad­ing high of 6.5549 hit last Fri­day.

It has now risen 4.12 per cent since it was de­pegged in June 2010, and 0.51 per cent so far this year.

Be­fore trad­ing be­gan, the PBOC fixed the yuan's mid­point at 6.5586, stronger than Tues­day's 6.5625 and only six pips away from the fix­ing's record high of 6.5580.

Off­shore, bench­mark oneyear dol­lar/yuan non-de­liv­er­able for­wards were bid at 6.4380 in late trade, down from 6.4480 at Tues­day's close. Their im­plied yuan ap­pre­ci­a­tion in a year's time inched higher to 1.87 per cent from 1.72 per cent.

Since the start of this year, NDF-im­plied yuan ap­pre­ci­a­tion has per­sis­tently lagged mar­ket ex­pec­ta­tions of a 5 to 6 per cent rise in 2011 partly be­cause hedge funds, the main play­ers in for­wards, cut back ex­po­sure to Asian mar­kets in favour of dol­lar as­sets as the US econ­omy re­cov­ers, traders said. -Reuters

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