SHANGHAI: China's yuan rose to a near seven-week high on Wednesday, with traders reporting strong client demand for the Chinese currency after recent data fueled expectations that it will appreciate.
Chinese banks purchased a record net 683.7 billion yuan ($109.90 billion) of foreign exchange in January, data on Tuesday afternoon showed.
Spot yuan changed hands at 6.2164 per dollar near midday on Wednesday, a gain of 0.07 percent over Tuesday's close.
Tuesday's data, which includes purchases by the PBOC, follows figures released on Monday which showed Chinese commercial banks purchased a net $92.6 billion in foreign exchange on behalf of clients in January.
Taken together, the heavy forex purchases signal increased corporate demand for yuan as well as possible intervention by authorities to restrain yuan appreciation.
Previously, traders had identified 6.22 as a resistance level for the yuan, but a series of stronger midpoint settings by the central bank since the end of the Lunar New Year holiday has allowed the spot rate to strengthen.
The People's Bank of China typically sets its daily midpoint weaker when the dollar falls against major currencies in global markets, as it has this week.
The apparent stabilisation of the Japanese yuan after a three-month bout of depreciation has also given the PBOC more leeway to permit yuan appreciation.
Traders say the strong forex purchase data has also persuaded clients that the risk of yuan depreciation - which pushed the yuan weaker for much of 2012 - is now low and increased clients' appetite for the Chinese currency.
Indeed, a comparison of monthly import and export data to the figures on bank forex purchases from client shows that exporters are increasing the proportion of their forex receipts that they convert into yuan, while importers are decreasing the proportion of their import payments that they are converting into foreign currency. Market players are uncertain about whether the yuan has significant space to strengthen further. Despite strong market demand for yuan, the PBOC's midpoints will determine whether appreciation pressure is allowed to express itself in the market.
Traders say if the midpoint breaks below 6.27, it would send a clear signal to the market that the PBOC is prepared to tolerate substantial appreciation.
Comments
Comments are closed.