SHANGHAI: The yuan jumped to a record high on Friday against the dollar on suspected intervention orchestrated by the central bank and aimed at deterring speculators from betting on a fall in the currency.
The People's Bank of China (PBOC) offered large amounts of dollars via major state banks, propelling the yuan to a record high of 6.3294 per dollar, currency traders said.
The yuan pulled back slightly by 0350 GMT to trade around 6.35, but was still up sharply from Thursday's close of 6.3735.
"This is a clear intervention by the government to support the yuan and is in the PBOC's recent moves to use the mid-point to prevent the yuan's fall," said a trader at a European bank in Shanghai.
"The move indicates that the government is determined to maintain the stability of the yuan's value in the near term, possibly even let it appreciate slightly."
The central bank had been trying to deter bets for yuan depreciation by setting the daily dollar/yuan mid-point, which determines the starting point for trade, at higher yuan levels.
Trading of the yuan is limited within a certain range from the mid-point.
Despite PBOC attempts to set the yuan's exchange rate higher via the mid-point, a shortage of dollars in the onshore China market and broad dollar strength in global markets have pushed the yuan down to the weaker end of its band nearly every day in December.
That marked rare weakness for a currency that has largely been on a rising trend since a landmark revaluation in 2005.
For several years, the yuan has been considered by investors as a sure fire appreciation bet as China amassed large surpluses from trade and Beijing came under pressure internationally to let the currency rise.
But some investors are now speculating that the yuan will fall in the near-term as China's exports are buffeted by a weak global economy.
"I'm not too surprised that the PBOC is taking it (dollar) a little lower ahead of year-end," said Andy Ji, currency strategist at Commonwealth Bank of Australia in Singapore.
"USD/CNY is down by 4 percent year-to-date and seems that the PBOC is committed to keep that pace of appreciation even with deterioration in the external environment."
Beijing seems wary of sharp swings amid weak external demand and financial market turmoil. Over the past few weeks, it has leashed the yuan within a range of about 500 pips centering around 6.35 per dollar.
A dealer said that the central bank's intervention had had the desired impact.
"Worries over yuan depreciation dispersed quickly, with the market now abundant with dollar liquidity," said a dealer at an Asian bank in Shanghai.
"The yuan is now expected to move mainly around 6.35 in the near term, possibly hitting a high of around 6.30 at the end of this year," he said, echoing views held by many traders.
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