SHANGHAI: The yuan edged up against the dollar on Thursday after the People's Bank of China fixed a slightly stronger mid-point, but fell short of letting its fixing hit a new high.
The PBOC appeared cautious, to not be too aggressive in letting the yuan appreciate over the past week amid the global market turmoil sparked by Japan's earthquake and nuclear crisis, traders said.
The yen soared to an all-time high versus the dollar on Thursday as a break of the previous peak, caused by the escalating crisis and subsequent rush for safety, triggered a cascade of stop-loss and algorithmic sales.
But traders said China was unlikely to change its goal for the yuan to appreciate in the long run as it appears to be using the currency to fight high inflation and help adjust an economic structure heavily reliant on exports.
"China has always cared about the stability of its currency during global market chaos, in particular amid the appreciation of other Asian currencies, which will add upward pressure on the yuan," said a senior trader at a European bank in Shanghai.
"But many of us believe the government has some undeclared targets for the yuan to appreciate at certain periods of time in line with China's economic conditions. Such goals will not easily be altered."
TIMING Spot yuan was trading at 6.5699 versus the dollar at midday, up from Wednesday's close of 6.5713. The currency has now risen 3.9 percent since it was depegged in June 2010.
Before trading began, the PBOC fixed the yuan's mid-point at 6.5690 to the dollar, stronger than Wednesday's 6.5718 but short of the fixing's record high of 6.5661 set on March 7. The PBOC uses the fixing, from which dollar/yuan can rise or fall 0.5 percent each day, to express the government's intentions for the Chinese currency.
Despite the yuan's lacklustre trading over the past week, traders said they retained the forecast for the yuan to appreciate 5 to 6 percent for all 2011.
"China's need to use yuan appreciation to help fight imported inflation will not be affected by the short-term factors' such as the current Japanese crisis," said a dealer at an Asian bank.
"In fact, the latest Japanese quake will create opportunities for Japan to import more for reconstruction, thus narrowing Japan's trade surplus with China.
"In other words, it will boost China's overall surplus with the rest of the world, adding to yuan appreciation pressure. The only thing we are not certain is the timing for yuan rises."
Traders expect the PBOC's daily fixing to hit a new peak as soon as Friday or next week, after the central bank has already allow the currency to hit a slew of record highs this year partly because of the government's anti-inflationary campaign.
Benchmark one-year dollar/yuan non-deliverable forwards (NDF) were bid at 6.4630, edging up from 6.4610 at Wednesday's close, with their implied yuan appreciation in a year's time falling to 1.64 percent from 1.67 percent.
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