SHANGHAI, May 2: China’s yuan hit another record high versus the dollar on Thursday after the central bank fixed its midpoint at a fresh all-time high, maintaining a trend that began in April, even as signs emerge that China’s economy is running into headwinds.
Spot yuan was trading at 6.1537 against the dollar at midday, the currency’s highest level since China established the domestic foreign exchange market in 1994.
Before trading began, the PBOC fixed the yuan’s midpoint at a record high of 6.2082. The exchange rate can rise or fall 1 percent from the official base rate in a day.
New export orders fell for the first time this year, a private survey revealed on Thursday, showing that China’s economic recovery may be at risk if overseas demand does not pick up.
Part of the reason may be technical. Chinese markets reopened Thurday after a three-day holiday, and during that time the dollar index slid steadily. Since the PBOC usually moves the midpoint with an eye on the dollar index and more recently the Japanese yen, today’s upward adjustment may have in part reflected a desire to make up for three days of dollar declines.
But traders say that bank’s midpoint settings have often ignored the moves of the dollar index in the last month, leading them to suspect there are other factors at play besides economics. The PBOC has strengthened the midpoint by nearly 600 points since April 1, after rising slightly over 200 points in 2012.
The People’s Bank of China (PBOC) has not given any explanations why it has suddenly allowed the yuan to appreciate at such a rapid pace, although regulators have publicly said that conditions are now beneficial to ‘consider’ widening the trading band that controls the range the exchange rate may move away from the daily fix on a given day.
Deputy PBOC governor Yi Gang also mooted the idea of further opening China’s capital account, but traders are unclear whether the strong midpoint settings are signals of upcoming policy changes or not.
‘The lack of transparency is leaving the market at a loss,’ said a dealer at a foreign bank in Shanghai.
‘In practice, however, the central bank prefers to surprise the market and it almost never announces a policy change while the market is talking about it.’
(AGENCIES)
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