SHANGHAI, Oct 24: China’s yuan traded at a new high versus the dollar on Wednesday, guided by a record midpoint setting by the central bank after the dollar slumped in global markets.
Spot yuan traded as high as 6.0855 per dollar after the People’s Bank of China (PBOC) set the official midpoint rate at 6.1330, the strongest the currency has been since China established its foreign exchange market in 1994.
It retreated slightly to 6.0863 near midday, still up 0.12 percent from Tuesday’s close of 6.0935.
The dollar index slid in global markets after lacklustre U.S. Jobs data, which investors interpreted as increasing the likelihood that the Federal Reserve will continue its monetary stimulus programme.
‘We think the PBOC allowed the CNY to strengthen vs. The USD in the last 10 days because it was a period of general USD weakness,’ the Royal Bank of Scotland said in a research note.
‘Other key currencies also appreciated against the USD.’
Dealers in the domestic market, however, said they believed the yuan’s recent strength was still mostly driven by Chinese corporates steadily unloading dollars.
‘Corporate dollar sales still dominate,’ said a trader at a Chinese commercial bank in Shanghai. ‘With so much dollar supply in the market, you simply cannot expect the yuan to weaken.’
But after the recent slew of record highs, traders said the yuan was likely to lose upward momentum soon.
They expected the yuan’s appreciation to stop around the psychological barrier of 6.0 per dollar, and said they believed it was unlikely the currency would effectively break through the level before year end.
Traders previously believed the yuan would not be able to pierce the 6.1 barrier, but that line was crossed on Oct. 16.
There is also 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.
(AGENCIES)
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