China's yuan rose against the dollar on Thursday, as US Treasury Secretary Henry Paulson visits Beijing to push for a more flexible and stronger Chinese currency.
The yuan was closed to 7.8185 versus Wednesday's close at 7.8265, after the central bank set the yuan mid-point at 7.8197, the highest mid-point level since the landmark revaluation in July 2005. The Chinese currency, also known as the renminbi, hit a new post-revaluation intra-day high of 7.8180 on Thursday morning.
Although dealers said they did not expect a big impact on the yuan from meetings on Thursday and Friday between Chinese officials and a US delegation headed by Paulson, most of them believed the central bank would allow the yuan to rise these few days to create friendly environment for the talks. "It's very diplomatic, which tells you that the country's foreign exchange market is still immature, not really driven by market forces," she added.
Paulson urged China on Thursday to work towards a freely floating exchange rate to help disarm critics of Beijing's trade and currency policies. Speaking at the start of a new "strategic economic dialogue" aimed at improving relations between the two economic powers, Paulson wasted no time in telling China that Washington wanted to see market forces setting the rate of the yuan.
However, China's Vice-Premier Wu Yi, the country's most powerful woman, said Beijing had "the genuine feeling that some American friends are not only having limited knowledge of, but harbouring much misunderstanding about, the reality in China".
The yuan's rise against the dollar will continue to be gradual, likely to be at an annualised pace of 4-6 percent in 2007, which would be basically unchanged from the last months of 2006, according to estimates by Bank of America.
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