The yuan ended up on the dollar on Wednesday as the People's Bank of China set its reference rate at a record high, kicking off a new leg of appreciation for the yuan ahead of President Hu Jintao's visit to the United States.
But the central bank was apparently careful not to fan excessive hopes of how much the yuan can appreciate as it did not let the yuan's mid-point breach the psychologically important 6.60 against the dollar, with traders citing concerns over capital inflows as one of the key factors.
The market took the cue from the PBOC fixing, from which the yuan can rise or fall 0.5 percent in a given day. Spot yuan traded below the crucial level and traders stayed wary of re-visiting 6.5896 hit on December 31 last year, which is its highest rate against the dollar since the yuan's landmark revaluation in July 2005.
Spot yuan closed at 6.6038 versus the dollar, up from Tuesday's close of 6.6200 after the PBOC set the currency's mid-point at 6.6128, up from Tuesday's 6.6216. It has risen 3.37 percent since it was depegged from the dollar in mid-June 2010. Non-deliverable dollar/yuan forwards (NDFs) fell nearly across the curve to imply slightly more yuan rise as the offshore market responded to the strengthening spot yuan.
Three-month NDFs fell to 6.5450 from Tuesday's 6.5510, implying yuan appreciation in three months' time of 1.04 percent from 0.94 percent. Traders said there was no impact from the news that state-owned Bank of China Ltd had offered yuan trading to US customers, a sign that Beijing this year may increasingly promote the use of the yuan in major financial centers.
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