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Yuan hits record closing high for 2nd day, but weekly gain small
October 12, 2012 / 9:46 AM / 5 years ago

Yuan hits record closing high for 2nd day, but weekly gain small

* PBOC tolerates yuan rise but no sign of intervention

* Potential for yuan to appreciate sharply limited

* Yuan also touches record intraday high of 6.2640/dollar

* But gains only 0.28 pct this week

By Lu Jianxin and Gabriel Wildau

SHANGHAI, Oct 12 (Reuters) - The yuan crept to a new closing high against the dollar on Friday for a second day after a stronger fixing of the midpoint, but gains on the week were moderate, suggesting the potential for further appreciation was limited, traders said.

The People’s Bank of China (PBOC) set the midpoint slightly stronger for the second straight day in an indication that it would tolerate mild yuan appreciation. But there was no evidence that the central bank had intervened in trading to boost the yuan’s value, as some had speculated, traders said.

“Clients’ dollar sales are the key factor for the yuan to rise this week,” said a dealer at a U.S. bank in Shanghai.

“It doesn’t make sense for the PBOC to intervene in trading to boost the yuan’s value at a time when weak global economic and market conditions are exerting pressure on China’s exports.”

Spot yuan closed at 6.2672 versus the dollar, the highest close since China set up the domestic foreign exchange market in 1994. The previous record close was set on Thursday at 6.2 770.

The currency also hit an intraday high of 6.26 40 surpassing Thursday’s historical intraday high of 6.2761.

Dollars sold by Chinese companies have flooded in since China’s onshore market resumed trading on Monday after a week-long holiday, an indication of capital inflows. But the yuan’s rise has remained moderate at only 0.2 8 pe r cent this week, slightly less than the week before the holiday.

Since mid-September the yuan has reversed a trend of depreciation seen earlier this year. The U.S. Federal Reserve’s launch of a third round of quantitative easing (QE3) has sparked strong interest in riskier assets such as emerging market currencies, while depressing the U.S. currency.

The PBOC had set a slew of midpoints weaker than the yuan’s trading levels since then, in what traders said was a sign that the authorities were worried about the impact of a strong currency on China’s weakening exports.

On Friday, the PBOC set the yuan’s midpoint at 6.3264 versus the dollar, slightly stronger than Thursday’s 6.3391.

But Friday’s midpoint was still much weaker than the yuan’s trading levels.

Judging from the current PBOC stance, several traders said they believed the central bank would allow the yuan to rise no more than 1 percent this year compared to end-2011. That would put the yuan at 6.2322 by the end of the year.

Driven by QE3, the yuan has now risen 0.43 percent versus the dollar so far this year, reversing a fall of 1.6 percent by late July.

“The yuan’s recent appreciation has been a rebound instead of the establishment of a new round of solid rises,” said a trader at a major European bank in Shanghai.

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