HONG KONG: China's yuan rose for a third consecutive day on Tuesday after the central bank again fixed the daily trading midpoint stronger than market predictions, indicating it was comfortable with the currency gaining for now.
The renminbi has started to rise after falling sharply early this year, thanks to the People's Bank of China's efforts to stamp out speculative bets and curb hot money inflows. Even with the recent strengthening, the yuan still has shed nearly 3 percent against the dollar in 2014.
With recent economic data showing some signs of improvement, the PBOC has started letting the yuan appreciate, though analysts don't believe there will be a sustained phase of strengthening.
The central bank set the yuan midpoint at 6.1451 per dollar, up 0.05 percent from Monday's 6.1485, its strongest level since late March. It beat banks' models and surprised markets which had expected the midpoint to be slightly weaker than on Monday.
Consequently, the yuan edged higher for a third day to 6.2326 per dollar compared to 6.2404 at the last close and moving further away from a May 28 low of 6.2639 per dollar.
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 from April's $18.5 billion, the General Administration of Customs said over the weekend.
Analysts at DBS Bank believe that the export gains, coupled with recent stimulus, could mean that growth improves from the disappointing 7.4 percent in the first quarter. That, in turn, would indicate the currency may have found its feet though subdued inflation means the currency will remain in a range for now.
"Until price pressures return and become a concern with the central bank, we don't expect yesterday's appreciation to be a trend and see a modest path instead," DBS analysts said. "At least, yesterday's move also sends the message that a two-way market does not imply a one-way depreciation either."
While the stronger-than-expected midpoint fixings since Friday aren't enough to show Beijing has embarked on a fresh round of currency gains, the PBOC - after injecting two-way market volatility - may let the currency rise following recent policy measures.
Bank of America Merrill Lynch analysts say the government's "mini stimulus" measures should further support exports and boost domestic demand, lifting Q2 GDP growth to 7.5 percent on a yearly basis.
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