Yuan up versus dollar

The yuan rose against the dollar in the spot and offshore forwards markets on Monday after central bank governor Zhou Xiaochuan warned monetary policy might need to be tightened further to fight inflation after last week's hike in domestic fuel prices.
Speaking in the United States late on Friday, Zhou said: "Surely the higher energy prices put some pressure on CPI, so we may have a stronger policy against inflation." Traders took this as further evidence that China would keep appreciating the yuan fairly rapidly to restrain inflation.
One-year dollar/yuan non-deliverable forwards fell to 6.4148 in early trade from Friday's close of 6.4515, though they bounced to 6.4380 in late trade. Their latest level implied yuan appreciation of 6.67 percent against the dollar in the next 12 months from Monday's spot mid-point.
The forwards market has raised its levels of implied appreciation in the past ten days, from a low of just under 4 percent, after Chinese May economic data showed substantial inflationary pressure from rising producer prices and imports.
One-year NDFs broke on Friday below technical support at the May low of 6.46, triggering a double top formed by the May and June highs and pointing down to 6.30 in coming days. In the spot market, the central bank set a strong daily yuan mid-point against the dollar of 6.8676, up sharply from Friday's 6.8826.
This boosted the yuan to a new post-revaluation high of 6.8680 in the opening minutes of trade. It closed at 6.8740, up from Friday's finish of 6.8801. "The strong mid-point shows the central bank's commitment to continue to use yuan appreciation against inflation after the rise in oil product prices," said a dealer at a bank in Shenzhen.
He added that he did not expect any significant pull-back of the yuan this week, even though it had already risen sharply last week and the central bank had in the past engineered pauses in appreciation after major legs up by the yuan.
In remarks published on Saturday, Guan Tao, a deputy division chief at the State Administration of Foreign Exchange, warned that markets should not expect a currency to move in just a single direction, adding that market expectations were not reliable in judging currency movements.
He cited the example of the Indian rupee. It appreciated more than 20 percent in 2007 but is now under depreciation pressure, Guan said. However, traders interpreted Guan's remarks merely as an attempt by authorities to deter currency speculators and ensure that implied yuan appreciation in the NDF market did not return to the overheated levels above 10 percent seen a few months ago.
The remarks did not suggest that Chinese authorities expected a reversal of the yuan's appreciation trend any time soon, traders believe. Guan also said authorities needed to act in a timely manner to let their currencies rise to curb inflation. He said Vietnam had resisted appreciation pressures on the dong for several years until inflation hit double digits last August. "However, that's too late and inflation was out of control by then," he said.