SHANGHAI, Oct 21: China’s yuan firmed against the dollar on Monday, hovering near its record high buoyed by large dollar sales from corporates while an all-time-high fixing by the central bank also boosted sentiment towards the Chinese currency.
However, traders said the yuan’s upward momentum was losing steam on Monday, with corporate dollar sales slower than last week, when the yuan hit record intraday highs every day.
There is market speculation that the latest wave of yuan appreciation is related to the forthcoming currency report by the U.S. Treasury Department. The report was due for publication on Oct. 15 but was delayed by the partial closure of the U.S. Government earlier this month.
U.S. Critics have said China keeps its currency artificially weak to gain benefits for exporters and have urged the Treasury to label China as a currency manipulator in its biannual reports, but the U.S. Administration has not done so in recent years.
To cushion U.S. Criticism, China has let the yuan appreciate slowly but steadily since the currency’s landmark revaluation in 2005, in particular during related political events, such as the publication of the reports or bilateral visits by senior officials to each other’s countries.
By midday, the yuan rose to 6.0950 per dollar, slightly stronger than 6.0968 at the close on Friday but below Friday’s intraday record high of 6.0915.
The People’s Bank of China (PBOC) fixed its dollar/yuan midpoint at another record high of 6.1352 on Monday, reflecting official tolerance for a moderate strengthening of the yuan.
‘Strong dollar sales from corporates eased today, signalling the latest round of yuan appreciation may come to an end soon, in particular if the United States is able to publish its currency report shortly,’ said a trader at a Chinese commercial bank in Shanghai.
‘However, as long as China continues to record big trade surpluses, keeping the market well supplied with dollars, the yuan will remain on its rising track. That prospect is unlikely to change at least for the rest of this year.’
Traders see the yuan moving narrowly around 6.1 against the dollar in coming weeks, and could test the main psychological barrier at 6.0 before the end of this year.
In addition to economic and political factors, the dollar’s market performance globally also plays a role in the yuan’s value.
‘The recent dollar weakness in global markets has offered an easy excuse for the PBOC to let the yuan appreciate in October,’ said a trader at a European bank in Shanghai.
The dollar index hit an eight-month low last week, propelled in part by worries over the U.S. Debt problems.(agencies)
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