The yuan closed marginally lower versus the dollar on Thursday even after the People's Bank of China set a record high mid-point, in a further sign that the government is using the currency to help fight high inflation, worsened by surging imported commodity prices.
The yuan also failed to immediately hit a record trading high amid caution that its appreciation may still be limited in the next couple of weeks as Chinese leaders gather in Beijing this week for the annual parliamentary session typically held in the first half of March, traders said. Spot yuan closed at 6.5731 versus the dollar, a shade weaker than Wednesday's close of 6.5727 and has risen 3.85 percent since its depegging in June 2010. It is now within arm's reach of its record trading high of 6.5654 hit on February 21.
Before trading began, the PBOC fixed the yuan's mid-point at 6.5695 on the dollar, stronger than Wednesday's 6.5736. The fixing's previous record was 6.5705 set on February 21. Benchmark one-year dollar/yuan non-deliverable forwards (NDF) were bid at 6.4080, marginally up from 6.4110 at Wednesday's close. Their implied yuan appreciation in a year's time rose to 2.52 percent from 2.47 percent.
For the past couple of months, NDF-implied yuan appreciation has persistently lagged market expectations of a 5 to 6 percent rise in 2011 partly because hedge funds, the main players in forwards, cut back exposure to Asian markets in favour of dollar assets as the US economy recovers, traders said.
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