The yuan closed up against the dollar on Friday after setting a record high, buoyed by the People's Bank of China fixing its daily mid-point at a new peak. The PBOC has fixed a slew of record high mid-points since the start of this year, indicating the government may be using the currency's exchange rate as part of its weaponry to fight high inflation.
Dealers see the yuan continuing its rises for the rest of this year, possibly appreciating 5 to 6 percent for all of 2011, but at a pace tightly controlled by the PBOC. "China needs to let the yuan appreciate, partly to fight inflation, but it also needs to prevent the appreciation from inviting speculative hot money inflows," said a trader at a US bank in Shanghai.
The yuan closed at 6.5576 versus the dollar, up from 6.5618 at Thursday's close. The currency hit an all-time trading high of 6.5549 in intraday trading, having risen 4.14 percent since it was depegged in June 2010, and 0.53 percent so far this year.
Its previous trading peak was 6.5552 set on Tuesday. Before trading began, the PBOC fixed the yuan's mid-point at a record high of 6.5580, up from Thursday's 6.5625. It uses the fixing, from which the dollar/yuan exchange rate may rise or fall 0.5 percent each day, to express its intentions on the direction for the currency.
Offshore, benchmark one-year dollar/yuan non-deliverable forwards (NDFs) were bid at 6.4390 in late trade, up slightly from 6.4320 at Thursday's close. Their implied yuan appreciation in a year's time fell to 1.85 percent from 1.96 percent.
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