HONG KONG: China's yuan rose against the dollar on Monday after the central bank set the daily fixing higher, by the biggest percentage in a single day since October 2012, fuelling expectations China may have started to guide the yuan back on an appreciation course.
The People's Bank of China (PBOC) set the yuan midpoint at 6.1485 per dollar, up 0.22 percent from Friday's 6.1623, its best level since late March. It beat banks' models and surprised markets which had expected it to be little changed from Friday.
Encouraged by the midpoint, spot yuan jumped to a one-week high of 6.2352 before easing to 6.2388 near midday, up 0.18 percent from Friday's close at 6.2502.
"The central bank is starting to guide the yuan back to an appreciation course given speculative money has largely been squeezed out," said a trader at a Chinese bank in Shanghai, who expected the yuan to rise to 6.2 within two weeks.
The yuan experienced its most sustained depreciation and lost more than 3 percent so far this year after the PBOC engineered a sharp fall of its currency in February to shake out speculative funds that bet on one-way and non-stop yuan appreciation.
However, the aim to keep the yuan weak is under pressure as China's exports gradually gained steam and trade surplus rose to a high level.
China's exports in May rose 7 percent from a year earlier, while imports fell 1.6 percent, widening the trade surplus sharply to $35.9 billion in May from April's $18.5 billion, the General Administration of Customs said over the weekend.
Analysts said the trade surplus in the world's second-largest economy may continue to expand from a rebound in US growth in the coming months, adding pressure on the yuan to appreciate in the second half of the year.
The International Monetary Fund (IMF) said Beijing must keep its word on implementing reforms that will correct imbalances, including a "moderately undervalued" yuan.
Though seasonal demand for dollars may gain pace in June as Chinese state-owned enterprises need to buy dollars to pay dividends to overseas investors, the amount is small compared with the trade surplus, traders said.
"With more dollar supply in the market, it's the right time for the PBOC to let the yuan take a pause from sharp depreciation seen in the first four months of this year," said a senior trader at a major Chinese commercial bank in Shanghai.
The "redback" has gained more than 30 percent against the dollar since its 2005 landmark revaluation. However, the significant weakness this year makes it the worst performer in Asia.
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