China's yuan closed at a post-revaluation high against the dollar on Monday for a second consecutive trading session, guided by the central bank's setting of a record high mid-point. The yuan ended at its intraday peak of 7.6047 to the dollar, its highest since Beijing revalued the Chinese currency and depegged it from the dollar in July 2005.
It hit an intraday low of 7.6085, still up from Friday's finish of 7.6132. Before the start of trade, the People's Bank of China fixed the yuan's daily mid-point at 7.6075 to the dollar, the strongest level for the reference point since the revaluation.
"Although the yuan has frequently been hitting record highs these past few weeks, the pace is still within the central bank's comfort zone," said a dealer at a Chinese commercial bank.
Several dealers now expect the yuan to break through the psychologically key 7.6000 level in coming weeks. Others said, however, that pressure for a technically driven pull-back was heavy after the yuan's sharp rise since June 11 without any full-fledged correction, although the central bank still holds the key for allowing the yuan to rise or fall.
"We still can't predict exactly how the yuan will go in the short term, but the yuan will reach the 7.6 level soon," said an analyst at a major Chinese state-owned bank.
The yuan has risen 0.77 percent since June 11, for an annual appreciation rate of more than 10 percent, although no one in the domestic foreign exchange market believes the Chinese currency will rise at this pace in the long term.
Since the start of 2007, the yuan has risen only 2.62 percent. Most dealers maintain their expectations that the yuan will rise 5 percent for all of 2007, up from a 3.4 percent rise in 2006.
Dealers said the latest pick-up in the yuan's rise was also related to the dollar's weakness against the euro on global markets over the past few trading sessions.
"As the euro moves strongly against the US dollar and with demand for the dollar waning, the yuan will inevitablely go higher than expected," said a dealer at a major US bank.
Global dollar demand has been dropping since last Thursday, when the Federal Reserve left interest rates unchanged, which spurred dealers to borrow in low-yielding currencies such as the yen and buy assets in currencies offering higher returns.
One-year offshore non-deliverable forwards (NDFs) quoted the yuan at 7.2550/7.2590, indicating appreciation of 4.80 to 4.86 percent in one year's time from Monday's mid-point, slightly up from 4.78 to 4.84 percent on Friday.