SHANGHAI: China's yuan hit a record high for the third straight session and was headed for its best day in over two months on Tuesday, as the central bank steered the currency higher to meet a pre-determined full-year target, traders said.
Spot yuan touched an all-time high of 6.0517 per dollar in late morning, 0.2 percent firmer than Monday's close, and was heading for its largest one-day rise since Oct. 14. It remained near that level at midday.
The steep gain came after the People's Bank of China (PBOC) set its strongest midpoint ever at 6.0969, 0.1 percent firmer than Monday's fix.
"The central bank already had a target at the beginning of the year for a 3 percent rise. They have one every year," said a Chinese forex trader at a city commercial bank in Shanghai.
Based on 2012's closing level of 6.2303, a 3 percent rise implies a closing level for 2013 of 6.0488, within 0.05 percent of Tuesday's midday level.
Despite the gains in recent days, traders say that corporate yuan demand has tapered off in the last few days of the year. Foreign exchange purchases by Chinese banks, a key proxy for foreign capital inflows, will likely be lower in December year than the elevated levels of recent months.
But the central bank's strong midpoints in recent days -- and its apparent lack of intervention to temper gains in the spot market -- has signaled to the market that the currency was free to rise, traders say.
For most of this year, the central bank has guided the yuan steadily stronger with its daily midpoint but intervened periodically in the spot market via large state-owned banks to temper the pace of appreciation.
Looking ahead, traders say that the yuan is likely to maintain steady appreciation in 2014, buoyed by China's strong trade surplus.
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