Yuan scales new peak against greenback
SHANGHAI
Wednesday, November 3, 2010
SPOT yuan closed higher against the US dollar yesterday and scored its second biggest single-day rise since its mid-June depegging as the market remained bullish over the short-term prospect of Chinese currency appreciation.
Amid a slew of political events in November that are set to raise the yuan's upside potential, the market shrugged off a weaker mid-point fixing by the People's Bank of China before trading started, a move apparently aimed at dampening enthusiasm for another round of yuan appreciation.
The PBOC has kept a lid on the mid-point since mid-October after it let the yuan appreciate more than two per cent versus the dollar in six weeks in the currency's quickest pace of appreciation since its landmark revaluation in July 2005.
That move has come about from increasing expectations for yuan appreciation in light of heavy US pressure on the Chinese authorities, particularly ahead of US mid-term elections.
"The PBOC is apparently worried about increasing speculation in yuan appreciation and hopes to use two-way trading to fight against speculators," said a trader at a Chinese state-owned bank in Beijing.
"But the market believes China's economic fundamentals still permit the yuan to appreciate at least in the foreseeable future, and that the PBOC will choose times of major political events to maximise the impact of any yuan moves towards that direction."
The yuan is under pressure from the United States and some other parties to appreciate against the dollar partly as China's economy and profitability are growing at a much faster pace.
On Monday, two sets of indicators on manufacturing activity China's Purchasing Managers' Index (PMI) showed that the country's economy continues to power ahead in October.
Among major political events in November, US President Barack Obama and Chinese President Hu Jintao will discuss the global economy and trade among other issues when they meet on November 11 on the sidelines of the G20 summit in Seoul.
China typically grants goodwill gestures ahead of political events that boost pressure for yuan appreciation.
Ahead of the previous G20 summit in late June, the government abolished a nearly two-year peg of the yuan to the dollar on June 19.
The yuan closed at 6.6777 versus the US dollar, up 0.36 percent from Monday's close of 6.7015, the biggest one-day gain other than June 21 the first trading day after the PBOC depegged it from the dollar on June 19.
Since the depegging, the yuan has risen 2.22 percent.
The central bank set the mid-point, or its reference rate from which the yuan can rise or fall 0.5 percent in a day, at 6.6925 yesterday, slightly weaker than Monday's 6.6886.
Dealers said trading is still under the tight grip of the central bank, with market supply and demand only playing a small role because the PBOC buys most dollars flowing into China to help stabilise the currency, among other restrictions.
Reuters
SHANGHAI
Wednesday, November 3, 2010
SPOT yuan closed higher against the US dollar yesterday and scored its second biggest single-day rise since its mid-June depegging as the market remained bullish over the short-term prospect of Chinese currency appreciation.
Amid a slew of political events in November that are set to raise the yuan's upside potential, the market shrugged off a weaker mid-point fixing by the People's Bank of China before trading started, a move apparently aimed at dampening enthusiasm for another round of yuan appreciation.
The PBOC has kept a lid on the mid-point since mid-October after it let the yuan appreciate more than two per cent versus the dollar in six weeks in the currency's quickest pace of appreciation since its landmark revaluation in July 2005.
That move has come about from increasing expectations for yuan appreciation in light of heavy US pressure on the Chinese authorities, particularly ahead of US mid-term elections.
"The PBOC is apparently worried about increasing speculation in yuan appreciation and hopes to use two-way trading to fight against speculators," said a trader at a Chinese state-owned bank in Beijing.
"But the market believes China's economic fundamentals still permit the yuan to appreciate at least in the foreseeable future, and that the PBOC will choose times of major political events to maximise the impact of any yuan moves towards that direction."
The yuan is under pressure from the United States and some other parties to appreciate against the dollar partly as China's economy and profitability are growing at a much faster pace.
On Monday, two sets of indicators on manufacturing activity China's Purchasing Managers' Index (PMI) showed that the country's economy continues to power ahead in October.
Among major political events in November, US President Barack Obama and Chinese President Hu Jintao will discuss the global economy and trade among other issues when they meet on November 11 on the sidelines of the G20 summit in Seoul.
China typically grants goodwill gestures ahead of political events that boost pressure for yuan appreciation.
Ahead of the previous G20 summit in late June, the government abolished a nearly two-year peg of the yuan to the dollar on June 19.
The yuan closed at 6.6777 versus the US dollar, up 0.36 percent from Monday's close of 6.7015, the biggest one-day gain other than June 21 the first trading day after the PBOC depegged it from the dollar on June 19.
Since the depegging, the yuan has risen 2.22 percent.
The central bank set the mid-point, or its reference rate from which the yuan can rise or fall 0.5 percent in a day, at 6.6925 yesterday, slightly weaker than Monday's 6.6886.
Dealers said trading is still under the tight grip of the central bank, with market supply and demand only playing a small role because the PBOC buys most dollars flowing into China to help stabilise the currency, among other restrictions.
Reuters