China's yuan closed up against the dollar on Thursday, hitting its highest level since its 2005 revaluation in intraday trading after macroeconomic data indicated the need for a further appreciation of the currency.
The yuan ended at 7.7705 to the dollar, up from 7.7725 at the close on Wednesday. It hit 7.7680 in late afternoon trade, its highest level since the currency was revalued by 2.1 percent and depegged from the dollar in July 2005.
Dealers said the yuan's strength came mainly because the central bank set its mid-point at a post-revaluation high of 7.7735 on Thursday morning, up from the previous mid-point of 7.7755, signalling Beijing's willingness to allow the currency to continue the relatively rapid appreciation seen so far this year.
Data for last year issued on Thursday, including higher-than-expected inflation, also pointed to the need for further yuan appreciation, dealers said.
"The market is optimistic over the potential for the yuan to rise at a faster pace this year against last year," said a dealer at a major Chinese commercial bank in Shenzhen.
Still, dealers said they were not in a rush to upgrade their forecast for the yuan's gains, but maintained the forecast that the yuan would rise to around 7.75 to the dollar in about a month's time and appreciate 5 percent in 2007, compared with a 3.4 percent gain last year.
The yuan has risen 0.44 percent so far this year, or at an annual appreciation rate of 5 to 6 percent. Optimism for the yuan to rise at a faster pace this year was also seen on the offshore non-deliverable forward market.
One-year NDFs quoted the yuan at 7.4010/7.4060, implying appreciation of between 4.96 and 5.03 percent from Thursday's mid-point. That compares with the 4.82 to 4.89 percent they had forecast on Wednesday.
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