Yuan hits record high as dollar slides globally
SHANGHAI: The yuan on Friday hit a record high as a global slide in the dollar consolidated optimism the yuan will continue appreciating in the coming days during Chinese President Hu Jintao's visit to Washington from Jan. 18-20.
The yuan hit an intraday high of 6.5870 versus the dollar, toppling its previous trading peak of 6.5896 touched on Dec. 31. The Chinese currency started trading in 1994.
Major state-owned firms were seen buying dollars in large quantity, which had capped the yuan's rise in early trade, but dollar demand was overwhelmed by liquidation after the U.S. dollar index dropped to its lowest level this year in late Asian trade, traders said.
"Everybody started liquidating dollar positions as the index began sliding around 3 p.m.," said a trader in a Chinese bank. "This was prudent as the yuan is already faced with the possibility of a solid rise next week due to Hu's U.S. visit."
Spot yuan closed slightly off highs at 6.5900 versus the dollar but up sharply from Thursday's close of 6.6046, having risen 3.59 percent since its mid-June depegging.
During the day, major state-owned companies were suspected to have helped the PBOC control the pace of yuan appreciation.
"What is clear is that major corporate clients do have demand in dollars, but what is unclear is the timing," said a trader at a European bank in Shanghai.
"These companies nowadays really need dollars as they expand merger and acquisition activities abroad, but a possibility that state-owned entities are helping the PBOC control pace of yuan appreciation cannot be ruled out."
RECORD HIGH The announcement on Thursday that China would allow its firms to make overseas investments in yuan -- ano! ther key step in expanding the currency's role in the global economy -- did not have an immediate impact as the yuan is still tightly controlled for now, traders said.
The People's Bank of China set a record high mid-point of 6.5896 on Friday, up from Thursday's 6.5997. It was a record high for the third day as Beijing was seen preparing to fend off U.S. criticism of its currency policy days before Hu's U.S. visit, despite the Chinese government saying it will not bow to foreign demand for faster gains in the yuan.
The yuan's rise in the last few days reflects a long-held pattern of the central bank allowing appreciation of the currency ahead of big political meetings where it often faces calls for the yuan to strengthen further.
U.S. businesses and officials want China to allow the currency to rise at a faster pace to help narrow a trade gap, widened by 26 percent to $181 billion in 2010.
While dealers were somewhat sceptical over what might be achieved on the currency issue during the Jan. 19 summit between Hu and U.S. President Barack Obama, they expected the yuan to have some room to rise until one or two days after the summit.
China-based currency traders said they expected the yuan to continue to gain early next week as Beijing looks to lay a positive foundation for Hu's talks with Obama, but that its rise could slow again afterwards.
The yuan might rise up to 6.55 per dollar until late next week and see a floor at 6.60 in the weeks after Hu's visit, they said.
Offshore dollar/yuan forwards rose slightly to imply less yuan appreciation in line with the view that the recent spurt in the yuan could lose momentum soon.
Benchmark one-year non-deliverable dollar/yuan forwards were bid at 6.4390 late in the session, up fr! om Thurs day's close of 6.4330. Their implied yuan appreciation in a year's time fell slightly to 2.34 percent from 2.44 percent.
The yuan hit an intraday high of 6.5870 versus the dollar, toppling its previous trading peak of 6.5896 touched on Dec. 31. The Chinese currency started trading in 1994.
Major state-owned firms were seen buying dollars in large quantity, which had capped the yuan's rise in early trade, but dollar demand was overwhelmed by liquidation after the U.S. dollar index dropped to its lowest level this year in late Asian trade, traders said.
"Everybody started liquidating dollar positions as the index began sliding around 3 p.m.," said a trader in a Chinese bank. "This was prudent as the yuan is already faced with the possibility of a solid rise next week due to Hu's U.S. visit."
Spot yuan closed slightly off highs at 6.5900 versus the dollar but up sharply from Thursday's close of 6.6046, having risen 3.59 percent since its mid-June depegging.
During the day, major state-owned companies were suspected to have helped the PBOC control the pace of yuan appreciation.
"What is clear is that major corporate clients do have demand in dollars, but what is unclear is the timing," said a trader at a European bank in Shanghai.
"These companies nowadays really need dollars as they expand merger and acquisition activities abroad, but a possibility that state-owned entities are helping the PBOC control pace of yuan appreciation cannot be ruled out."
RECORD HIGH The announcement on Thursday that China would allow its firms to make overseas investments in yuan -- ano! ther key step in expanding the currency's role in the global economy -- did not have an immediate impact as the yuan is still tightly controlled for now, traders said.
The People's Bank of China set a record high mid-point of 6.5896 on Friday, up from Thursday's 6.5997. It was a record high for the third day as Beijing was seen preparing to fend off U.S. criticism of its currency policy days before Hu's U.S. visit, despite the Chinese government saying it will not bow to foreign demand for faster gains in the yuan.
The yuan's rise in the last few days reflects a long-held pattern of the central bank allowing appreciation of the currency ahead of big political meetings where it often faces calls for the yuan to strengthen further.
U.S. businesses and officials want China to allow the currency to rise at a faster pace to help narrow a trade gap, widened by 26 percent to $181 billion in 2010.
While dealers were somewhat sceptical over what might be achieved on the currency issue during the Jan. 19 summit between Hu and U.S. President Barack Obama, they expected the yuan to have some room to rise until one or two days after the summit.
China-based currency traders said they expected the yuan to continue to gain early next week as Beijing looks to lay a positive foundation for Hu's talks with Obama, but that its rise could slow again afterwards.
The yuan might rise up to 6.55 per dollar until late next week and see a floor at 6.60 in the weeks after Hu's visit, they said.
Offshore dollar/yuan forwards rose slightly to imply less yuan appreciation in line with the view that the recent spurt in the yuan could lose momentum soon.
Benchmark one-year non-deliverable dollar/yuan forwards were bid at 6.4390 late in the session, up fr! om Thurs day's close of 6.4330. Their implied yuan appreciation in a year's time fell slightly to 2.34 percent from 2.44 percent.
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