SHANGHAI: The yuan closed up against the dollar after hitting a record trading high on Tuesday as the People's Bank of China set its mid-point at an all-time high after the dollar index sank to a seven-week low.
The dollar index dropped sharply on Tuesday as US lawmakers' standoff over dueling debt plans caused investors to seek alternate safe-haven currencies.
"The yuan was pushed up by a weak dollar," said a dealer at a Chinese bank in Shanghai. "And, it seems the dollar is likely to fall further."
Spot yuan closed at 6.4414 versus the dollar, stronger than Monday's close of 6.4450. It has now appreciated 6 percent since it was depegged from the dollar in June 2010 and 2.3 percent so far this year.
In intraday trading, the currency hit an all time high of 6.4382 after the PBOC fixed its mid-point at a record high of 6.4470, stronger than Monday's 6.4503 and toppling the fixing's historical high of 6.4495 set last Friday.
But dealers said the pace of yuan appreciation could slow from expectations in early 2011 due to relatively stable global commodity prices and despite the dollar's weakness.
Mainland-based traders now estimate the yuan may rise about 2 percent versus the dollar in the second half of this year, adding to a 2 percent increase in the first half.
That compares with a 5 to 6 percent full-year increase forecast by most dealers early this year.
Offshore, benchmark one-year dollar/yuan non-deliverable forwards (NDFs) were bid at 6.3680 in late trade, down slightly from 6.3830 at the previous day's close. Their implied yuan appreciation in a year's time was up slightly at 1.24 percent from 1.00 percent.
Copyright Reuters, 2011
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