The yuan rose to a record high against the dollar on Tuesday after the People's Bank of China set the mid-point at a new peak, signalling the government intends to use the currency to help fight high inflation.
The China Securities Journal, an official newspaper, said on Tuesday that China should allow its currency to rise more quickly in the near term to repel imported inflationary pressure from soaring oil prices. Oil prices have stayed high as spreading unrest in the Middle East intensified concerns about potential threats to the region's oil supply and UN-mandated air strikes kept flow reduced from Opec member Libya.
The dollar index, which tracks its performance against a basket of major currencies, was at 75.3 on Tuesday at 0840 GMT, hovering near a 16-month low. The yuan traded in a range from 6.5552, a record high, to 6.5596, and ended at 6.5561 versus the dollar, up from Monday's close of 6.5611.
The currency has now risen about 4.1 percent since it was depegged in June 2010, and 0.2 percent so far this week. Before trading began, the PBOC fixed the yuan's mid-point at a record high of 6.5592 to the dollar, versus Monday's 6.5632. The PBOC uses the fixing, from which the dollar/yuan exchange rate may rise or fall 0.5 percent each day, to express the government's intentions for the currency. Benchmark one-year dollar/yuan non-deliverable forwards were bid at 6.4290 on Monday, down slightly from 6.4320 at Monday's close. Their implied yuan appreciation in a year's time was at 2.0 percent.