SHANGHAI: The yuan rose versus the dollar on Monday after the People's Bank of China fixed a record high mid-point, signalling its intentions to use the yuan as another inflation-fighting tool following an unexpected increase in banks' reserve requirement ratios last Friday.
The 50 basis point rise in RRR after markets had closed on Friday was the third such increase this year and the sixth since November.
But spot yuan traded in a small range around the mid-point, with investors preferring to take a wait-and-see stance to monitor the central bank's next policy step.
"Another quiet day again," said a dealer at a Chinese commercial bank in Shanghai. "We cannot be very sure about the central bank's next step, so we still focus on the dollar's move and clients demand for now."
"But in the long term, the yuan still has room to rise because of high domestic inflation and overseas pressure."
The dollar index was at 75.6 by midday, after hitting a 15-month low on Friday.
The yuan was trading at 6.5659 versus the dollar by midday, up from Friday's close of 6.5691. The currency has now risen around 4 percent since it was depegged in June 2010.
Before trading began, the PBOC fixed the yuan's mid-point at a record high of 6.5632 to the dollar, stronger than Friday's 6.5668.
China appears to be using the yuan's exchange rate to fight high inflation and help adjust an economic structure heavily reliant on exports, promoting widespread expectations that the currency will appreciate at a much faster pace than last year's 3.6 percent rise.
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.
Benchmark one-year dollar/yuan non-deliverable forwards (NDF) were bid at 6.4400 by midday on Friday, little changed from 6.4410 at Friday's close. Their implied yuan appreciation in a year's time was at 1.90 percent.
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