Yuan closes up

China's yuan closed stronger against the dollar on Wednesday after hitting its highest since its 2005 revaluation, but the outlook is murky as US senators prepare legislation aimed at prodding the currency to rise much faster, dealers said.
The People's Bank of China on Wednesday set a much higher yuan mid-point, its guidepost for the day's trade, after spurring sharp swings in both directions over the past week, but dealers said the bank's latest move did not necessarily point to a quicker pace of yuan appreciation.
Reflecting the market's uneasiness, Wednesday's offshore non-deliverable forwards showed a steep weakening of expectations for yuan appreciation. One-year NDFs quoted the yuan at 7.2970/7.3020, indicating appreciation of 4.47 to 4.54 percent in one year's time from Wednesday's mid-point. That was down from 4.88 to 4.95 percent on Tuesday and 6.55 to 6.62 percent in late March.
In the United States, the top Democrat and Republican on the Senate Banking Committee said they would introduce legislation on Wednesday that would give the Treasury Department stronger tools to confront China's currency practices. The Treasury is also due on Wednesday to release a semi-annual report on foreign currency practices, which is expected again to stop short of formally labelling China a currency manipulator.
Many US lawmakers believe China deliberately undervalues its currency by as much as 40 percent to give Chinese companies an unfair advantage in international trade. Dealers said the political wrangling added to uncertainty in the market. "The yuan's volatility in the past week makes its short-term trend completely unpredictable as nobody knows what mid-point the central bank will set in the coming days or weeks," said a Shanghai dealer at a foreign bank.
"In addition, if the US yuan legislation gets passed, it could backfire as China may take retaliatory steps," he said. China's Foreign Ministry, abandoning its usual reluctance to wade into trade disputes, said on Tuesday that the proposed US legislation risked politicising trade and would not sway its priorities.
"But whose standard is this? It's the United States'," Qin said. "But ultimately China's renminbi exchange rate must suit Chinese realities, and it must benefit China's and the world's economic development."