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The yuan edged lower against the dollar on Tuesday, staging a consolidation after it hit a post-revaluation high each day for the past three trading days, but dealers said the Chinese currency was still on track for an uptrend in the near term.
"The yuan staged a correction today on the back of a fall in the dollar on global markets, but its recent quickened pace of appreciation is unlikely to be stopped," said a Shanghai dealer at a European bank. The dollar edged higher from a one-month low against the yen on Tuesday after weak economic data in Japan cast doubt on whether the Bank of Japan would be able to raise interest rates again this year.
The yuan closed at 7.8790 to the dollar, down from 7.8738 at the close of Monday. The slip came after the yuan rose 0.20 percent on Monday, its second biggest rise since Beijing revalued it by 2.1 percent and depegged it from the dollar in July 2005. On Monday, it hit 7.8737, the third straight trading day in which it reached a post-depegging high.
Dealers said the main reason for the yuan's recent strong performance was that the central bank had allowed the Chinese currency to rise at a faster pace since mid-September. Despite Tuesday's fall, the yuan has still risen 0.81 percent since September 15 when its gains began to pick up pace, meaning it has been appreciating at an annual rate of 6.5 percent during the past six weeks.
That compares with a total gain of 2.43 percent since the start of this year, an annual rate of less than 3 percent. Dealers said the latest quickened pace of appreciation would help the yuan to catch up with its slower-than-expected gains earlier this year. The yuan was now set to rise at least 3 percent and possibly as high as 3.5 percent, for all of 2006.

Copyright Reuters, 2006

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