SHANGHAI: China's yuan edged down on Monday after a string of record highs, following weaker central bank guidance, but traders say the currency's latest appreciation trend remains intact.
The yuan is likely to continue to appreciate in a measured way until early September, when a G20 summit kicks off in Moscow, traders said. China has traditionally let its currency appreciate ahead of major international political events in a gesture to trading partners who feel the yuan is undervalued.
The People's Bank of China (PBOC) is likely to use a two steps forward, one step backward pattern to guide the yuan, and Monday's slightly softer official midpoint is another example of this practice, traders said.
"Looking at market conditions, we haven't seen any particular factors that would have pushed the yuan to a slew of record highs in the past two weeks," said a trader at a Chinese commercial bank in Shanghai.
"So it appears quite safe to say that the PBOC is behind the latest phase of yuan appreciation," she said.
"If so, you cannot expect the yuan to fall back until the G20 summit is over, going by past experience."
Spot yuan changed hands around 6.1200 per dollar near midday, 0.08 percent weaker than Friday's close of 6.1150. The currency hit an all-time high of 6.1090 last Friday following a string of record highs since Aug. 8.
Monday's step backwards was guided by the PBOC, which set its official midpoint at 6.1690, 0.04 percent weaker than Friday's fix, traders said.
Overall, however, the central bank appears to be using a recent weakening in the dollar index and China's better-than-expected export figures in July as reasons to guide the yuan higher in advance of the G20, traders said.
The yuan has gained 1.81 percent so far this year, bucking a weakening trend in emerging market currencies, but the bulk of those gains occurred in April and May.
After surprisingly weak exports in June, the yuan's rise fizzled out, leading some traders to speculate that the central bank might be seeking mild depreciation. But exports recovered sharply in July, and the PBOC may have let that factor play a part in fuelling the yuan's streak to record highs, traders said.
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