SHANGHAI: China's yuan ended at a record high of 6.2223 against the dollar on Tuesday, as corporates struggled to unwind long dollar positions while the central bank's reluctance to let the yuan rise faster curbed trading activity.
The Chinese currency opened at a record level and stayed there almost all day after the People's Bank of China (PBOC) set a slightly firmer midpoint, limiting the scope for appreciation. The yuan can rise or fall only 1 percent from the central bank's base rate in a day.
Corporates continued selling off long dollar positions, which they had accumulated partly because the PBOC had recently fixed midpoints that prevented companies from liquidating at the rates they wished, traders said.
They said the current stand-off will likely continue until the PBOC either releases more yuan liquidity into the market via dollar purchases or else sets its midpoint stronger to allow the spot rate more room to appreciate without hitting the 1 percent band.
"We don't know what's the PBOC's current strategy," said a senior dealer at a major European bank in Shanghai. "But the central bank should at least boost liquidity to let the market operate normally."
Nearly every trade in the spot market occurred at 6.2223 per dollar, a shade stronger than Monday's close of 6.2255 and the strongest level permitted by the central bank's daily trading band.
Central bank data showed that trading was relatively active in the early afternoon when the yuan was briefly quoted off the upside limit. But traders said overall trading was very thin.
Tuesday's all-time high topped the previous record high of 6.2252 set on Nov. 14. The yuan has now hit its limit for four straight sessions and for 21 of the last 24.
The trend indicates what traders say amounts to a stand-off between the market and the central bank, which has held its daily midpoint stubbornly stable in spite of market forces pushing for a stronger yuan.
On Tuesday, the central bank set its midpoint at 6.2852, slightly firmer than Monday's fix of 6.2884.
Pressure for the yuan to appreciate has come from the unwinding of long dollar positions built up earlier this year, when the Chinese currency was softening. At the time, Chinese exporters chose to accumulate dollars earned through trade rather than swapping them for yuan.
The yuan weakened by 1.6 percent from the beginning of the year through late July amid weak Chinese export growth, a broader slowdown in the world's second-largest economy and the euro zone debt crisis, which pushed the dollar higher against most emerging-market currencies.
But the dollar fell back on the heels of an improved outlook in Europe, a new round of quantitative easing by the Federal Reserve and signs of a recovery in the Chinese economy. The yuan has now risen 1.2 percent in 2012.
Comments
Comments are closed for this article.