SHANGHAI: China's yuan briefly touched record highs against the dollar on Wednesday morning, stirring speculation among traders whether the central bank was willing to allow more appreciation.
The Chinese currency has been largely flat since late May after it hit a record high of 6.1210 per dollar, with market participants believing the People's Bank of China was signalling its intentions to keep the rate stable amid sliding exports.
But spot yuan struck a series of all-time highs in early trade, hitting a peak of 6.1203 versus the dollar in the morning session before falling back quickly to change hands at 6.1221 per dollar at midday, slightly weaker than Tuesday's close of 6.1217.
"Many in the market believe that unusual quotes often come from the PBOC's trading room directly, although no one can be certain," said a trader at a European bank in Shanghai.
"The market is now divided as to whether the PBOC is testing waters for a stronger yuan. However, spot yuan did fall back shortly after the record highs, and the PBOC's official fixing did not give any sign of another round of yuan appreciation."
The central bank set its official midpoint at 6.1726 on Wednesday, only 0.04 percent stronger than Tuesday's 6.1753.
Trader said Wednesday's midpoint appeared to be fixed higher tracking a 0.3 percent fall in the dollar index <.DXY > overnight. But the midpoint is still far from the fixing's record high of 6.1598 set on June 17.
"One day's trading high may not serve as a signal for immediate yuan appreciation necessarily," said a trader at a Chinese commercial bank in Shanghai.
"On the other hand, in the long run the PBOC is known for its relatively hawkish stance toward the yuan, which it wants to appreciate to help China's exchange rate reforms. We will be watching future moves."
There has been significant diffidence in China - in particular among those in the export sector - regarding the wisdom of the government's decision to let the yuan rally 1.5 percent in two months in April and May even when China's export growth was falling.
The market was particularly startled in July when data showed that June exports declined by over 3 percent when analysts had widely predicted they would grow 4 percent. Traders and analysts subsequently predicted the PBOC would keep the yuan flat, or even set off a mild round of depreciation, in order to hold off a further loss in export competitiveness.
The government urgently needs to keep the yuan's exchange rate stable to help relieve the burden of exporters, said a research report on Wednesday by the State Information Centre, one of the top think tanks managed by China's top economic planner, the National Development and Reform Commission.
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