China's yuan took a breather on Wednesday, finishing weaker against the dollar following consecutive gains in the past two days. The yuan ended at 8.0120 to the dollar versus Tuesday's close of 8.0050, after the central bank set its mid-point rate at a weaker 8.0120 compared with 8.0110 the previous day.
"The yuan is just taking a break today," said a trader with a Shenzhen-based lender. "This by no means changes its upward trend."
China on Wednesday reiterated its pledges to eventually make the yuan convertible but also said it would tread cautiously in the process and guard against speculative capital. "We must be clear-headed in the process of steadily pushing forward the yuan's capital account convertibility, refrain from being rigid and conservative, but prevent any blind and rash move," Li Dongrong, vice head of China's foreign exchange regulator.
The yuan has now appreciated a further 1.2 percent since it was revalued by 2.1 percent to 8.11 per dollar in July, and freed from a dollar peg to float within managed bands. Traders expected it to challenge the 8.0000 level prior to Chinese President Hu Jintao's trip to the United States next week, due in part to pressure from its major trading partner.
Critics in Washington have been urging Beijing to let the yuan appreciate more quickly, saying an undervalued currency gives China an unfair export edge and fuels its trade surplus, which jumped to $11.2 billion in March from $2.45 billion in February.
Even though Chinese companies are signing up multi-billion-dollar deals to buy US goods and services ahead of Hu's visit, bilateral trade imbalances and the currency could still top his agenda, traders say.
"I won't be surprised to see the yuan top the 8.0000 level in the next few days," said a trader with a local lender. On Wednesday, one-year onshore yuan forwards were quoted at 7.7615 per dollar, anticipating that the yuan would be 3.2 percent stronger in a year's time.
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