SHANGHAI: The yuan strengthened against the dollar on Tuesday amid market hopes that it would stage another leg of modest appreciation ahead of a visit to the United States by Chinese leader-in-waiting Xi Jinping in mid-February, traders said.
The yuan was seen rising past 6.30 per dollar in the coming two weeks and then pivoting in a narrow range for the rest of the first quarter as China evaluates the impact on its exports from a weak global economy and the euro zone debt crisis.
Such expectations kept the yuan firmer in Tuesday trade even after the People's Bank of China set a weaker mid-point while the Chinese currency headed for a 0.37 percent fall in January.
After appreciating sharply in the last few days of 2011, the yuan fell back in early January and has traded mainly in a narrow range of 6.31 - 6.32 per dollar, as the central bank has kept the exchange rate basically stable due to uncertainty about a slowing economy and weakening foreign demand.
"The government has signalled a general trend of stability for the yuan since the start of this year," said a dealer at an Asian bank in Shanghai.
"But this attitude will not affect the yuan's periodical appreciation as China's goodwill gesture to the United States."
Spot yuan was trading at 6.3175 versus the dollar at midday, stronger than 6.3310 at Monday's close, and ignoring the PBOC's weaker mid-point of 6.3115 against Monday's 6.3056.
DIPLOMATIC
US President Barack Obama will host China's likely next leader, Vice President Xi, at the White House on Feb. 14.
China has long faced pressure from the United States to let its currency appreciate to help balance bilateral trade.
China has painted a picture of resisting US pressure but has in reality let the yuan rise intermittently and especially during state visits of the countries' leaders, viewed by the market as goodwill gestures and being diplomatic due to the importance of ties between the world's two biggest economies.
More recently, officials have repeatedly stressed the need for maintaining the yuan's stability amid global economic uncertainties.
Premier Wen Jiabao in remarks published on Monday repeated China's long-standing commitment to further improve the yuan's exchange rate pricing mechanism but once again stressed that the government would maintain a basically stable yuan exchange rate.
In the offshore non-deliverable forward market, one-year NDFs traded at 6.2825 around midday, implying 0.46 percent yuan appreciation over the next year, compared with a 0.47 percent rise implied at Monday's close.
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