SHANGHAI: China's yuan hit a record high on Tuesday, as a domestic selloff of long dollar positions combined with a weak dollar globally to support the Chinese currency.
Nearly every trade in the spot market occurred at 6.2223 per dollar, a shade stronger than Monday's close of 6.2255 and the strongest level permitted by the central bank's daily trading band.
That topped the previous record high of 6.2252 set on Nov. 14. The yuan has now hit its limit for four straight sessions and for 21 of the last 24.
The trend indicates what traders say amounts to a standoff between the market and the central bank, which has held its daily midpoint stubbornly stable in spite of market forces pushing for a stronger yuan.
On Tuesday, the central bank set its midpoint at 6.2852, slightly firmer than Monday's fix of 6.2884. The exchange rate can rise or fall 1 percent from the central bank's daily midpoint.
Pressure for the yuan to appreciate has come from the unwinding of long dollar positions built up earlier this year, when the Chinese currency was softening. At the time, Chinese exporters chose to accumulate dollars earned through trade rather than swapping them for yuan.
The yuan weakened by 1.6 percent from the beginning of the year through late July amid weak Chinese export growth, a broader slowdown in the world's second-largest economy and the eurozone debt crisis, which pushed the dollar higher against most emerging-market currencies.
But the dollar fell back on the heels of an improved outlook in Europe, a new round of quantitative easing by the Federal Reserve and signs of a recovery in the Chinese economy. The yuan has now risen 1.2 percent in 2012.
Traders say the current standoff will likely continue until the People's Bank of China either releases more yuan liquidity into the market via dollar purchases or else sets its midpoint stronger to allow the spot rate more room to appreciate without hitting the 1 percent band.
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