China's yuan closed on Thursday at its highest level against the dollar since its revaluation in July 2005, propelled by expectations for yuan appreciation after this week's US Federal Reserve meeting.
The yuan ended at its intraday high of 7.9955 to the dollar, up from Wednesday's close of 7.9984. The yuan has now appreciated 1.43 percent since its 2.1 percent revaluation. Its previous peak since the revaluation was 7.9956, reached on June 22. Dealers said the central bank did not appear to be buying dollars aggressively on Thursday. "There was active dollar-selling interest among both foreign and domestic banks in the last 30 minutes of trading, indicating a strong anticipation of yuan appreciation in the near term," said a Shanghai dealer at a US bank.
The Fed's expected interest rate rise this week would further widen the rate gap between the yuan and the US currency, which now stands at about three percentage points.
Some dealers said this could provide an opportunity for the Chinese central bank to engineer another controlled leg up by the yuan. The bank is keen to cool the rapidly growing economy, and currency appreciation could help it do so.
Another US interest rate hike "will ease the pressure for speculative funds to flow into China, allowing the PBOC to free the yuan's exchange rate more easily," said a dealer at a European bank. Dealers forecast the yuan would rise in coming days and could test a psychologically important level at 7.9900 before the end of next week.
Figures published by local media this week indicated pressure for yuan appreciation remained strong. China's foreign exchange reserves rose by $30 billion in May to $925 billion, the semi-official China Business News said on Wednesday, the highest monthly increase at least since the start of last year.
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