SHANGHAI: The yuan closed just shy of its year high on Wednesday, but traders remain divided about whether the move signals a spurt of appreciation in the run-up to a Chinese official visit to the United States next week.
Spot yuan closed at 6.2945 per dollar, 104 pips firmer than Tuesday's close and just 1 pip shy of its strongest close this year, which occurred on the year's first trading day, Jan. 4. The People's Bank of China (PBOC) set a midpoint of 6.3027, also its strongest since Jan. 4. The spot rate had not broken through the 6.30 barrier since Jan. 4.
PBOC's strong midpoint was partly a response to a weaker dollar overnight, traders say. But the move still marks a break from the last three weeks, when the central bank resisted guiding the yuan higher, even in the face of a weakening dollar.
"Even though the dollar index fell overnight, the extent of the midpoint drop exceeded expectations," said a trader at a Chinese joint-stock bank in Shanghai, referring to the fall in the dollar/yuan fix.
The market has widely expected a spate of yuan appreciation in advance of Vice President Xi Jinping's visit to the United States on Feb. 14, but not all traders are ready to declare that significant appreciation is now at hand.
Wednesday's midpoint is mainly an overdue response to several weeks of dollar weakness, rather than a political gesture, said a trader at another joint-stock bank in Shanghai.
"Recently, US-China relations are a bit complicated, so China won't necessarily make a big gesture," he said.
PBOC often likes to keep the market off guard to deter speculation, and one-day blip swings in the midpoint have ocurred before.
The offshore non-deliverable forward (NDF) market reacted to the onshore movement. One-month dollar/yuan NDFs traded at 6.2870 late on Wednesday afternoon, 70 pips lower than Tuesday's close.
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