Chinese Yuan Hits 19-Year High Against Dollar

August 7, 2013Currenciesby EW News Desk Team

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The Chinese yuan hit a record high against the U.S. dollar in intraday trading on Wednesday as the People’s Bank of China lifted the currency’s reference rate, fuelling speculation that the central bank will soon allow greater appreciation of the yuan.

The yuan hit a new record on Wednesday with the spot rate hitting 6.1206 against the U.S. dollar in morning trade, the strongest level since the government unified the official and market exchange rates at the end of 1993. The spot rate was 0.83 percent stronger than the PBOC’s fixing, compared with the maximum allowed divergence of 1 percent.

The central bank set its official midpoint at 6.1726 on Wednesday, 0.04 percent stronger than Tuesday's 6.1753.

"Many in the market believe that unusual quotes often come from the PBOC's trading room directly, although no one can be certain," said a trader at a European bank in Shanghai.

"The market is now divided as to whether the PBOC is testing waters for a stronger yuan. However, spot yuan did fall back shortly after the record highs, and the PBOC's official fixing did not give any sign of another round of yuan appreciation."

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The yuan enjoyed a strong rally in Q2 but concerns over a slowdown in the world’s second-largest economy have seen its gains contained in a narrow range.

In July, the Chinese government rolled out a slew of measures to support firms and the economy, including the removal of value-added taxes for small businesses, cutting red tape for importers and exporters, and simplified rules for service industry firms needing foreign currency.

But traders said the concerns about growth and losses in other emerging currencies, as the dollar gains on speculation that the U.S. Federal Reserve may start withdrawing some of its monetary stimulus this year, meant chances for significant yuan gains appeared slim.

"One day's trading high may not serve as a signal for immediate yuan appreciation necessarily," said a trader at a Chinese commercial bank in Shanghai.

"On the other hand, in the long run the PBOC is known for its relatively hawkish stance toward the yuan, which it wants to appreciate to help China's exchange rate reforms. We will be watching future moves."

The yuan has appreciated 1.8 percent against the dollar this year, making it the sole gainer among Asia’s 11 most-traded currencies. Japanese yen was the region’s worst-performer, while the Indian rupee has tumbled 10 percent since the start of the year.

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