SHANGHAI: Spot yuan traded in Hong Kong hit a record high against the dollar for the second straight day on Thursday as China posted much stronger-than-expected trade data that buttressed already bullish sentiment towards the Chinese currency.
CNH changed hands at an all-time high of 6.1955 versus the dollar at midday, overtaking the intraday historical high of 6.1995 it struck on Wednesday.
Onshore yuan in Shanghai also rose slightly to 6.2228 from Wednesday's close of 6.2262, but it failed to revisit the record high of 6.2216 it hit in the previous session.
The People's Bank of China (PBOC) fixed its midpoint at an eight-month high of 6.2793 on Thursday, up from Wednesday's midpoint of 6.2814.
This is another sign that the central bank is tolerating more yuan appreciation, possibly because of the country's improving exports, traders said.
The PBOC allows the exchange rate to rise or fall by no more than 1 percent from the midpoint it sets each morning.
Still, some traders reported large-scale purchases of foreign exchange in the onshore market by big Chinese state-owned banks in recent days, even in the face of the rising yuan.
Traders said this may be a signal that the PBOC will direct these banks to buy dollars to prevent the yuan from rising a rate that could destabilise other parts of the economy.
Trading volume was a heavy $9.2 billion on Thursday morning alone, compared with turnover of around $13 billion on an average day.
"Sentiment towards the yuan has become quite bullish for now," said a trader at a US bank in Shanghai, adding that the yuan could possibly test the psychologically important level of 6.22 against the dollar in coming months.
"While short-term yuan appreciation is almost certain, the long-term prospects for the currency are far from clear as the market does not expect China's economy, its exports as well, to stage a U-turn."
NDFs IMPLY APPRECIATION
China's export growth rebounded in December from a three-month low, expanding at the fastest rate in seven months, although the outlook for 2013 remains cloudy with US and European demand for Chinese goods still subdued.
Trade data from the world's second-largest economy showed the value of exports grew 14.1 percent last month compared with a year earlier, racing past the forecasts of analysts polled by Reuters, who had expected annual growth of 4 percent, and accelerating from 2.9 percent in November.
Encouraged by the data, benchmark offshore dollar/yuan non-deliverable forwards (NDFs) on Thursday began indicating yuan appreciation based on the PBOC's midpoint for the first time in 10 months.
One-year NDFs were bid at an 11-month low of 6.2720 in morning trade. This marks the first time since March 2012 that NDFs have priced at levels implying yuan appreciation, instead of depreciation, over the next 12 months.
However, NDFs track the official midpoint, not the spot rate.
Offshore markets have been particularly bullish towards yuan's future value, with spot yuan traded in Hong Kong trading at a significant premium to the onshore rate since late November.
This supports traders' theories that the central bank is keeping a leash on the onshore market by instructing state-owned banks to buy dollars in the onshore forex market.
A dealer at a major Chinese state-owned bank in Beijing said that improving export figures have expanded the supply of dollars, further increasing the relative value of the yuan.
"Recently the trend is for corporates to prefer the yuan over dollars, and that trend is likely to continue in the near term."
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