China's yuan closed up against the dollar on Friday and scored its biggest weekly gain since its 2005 revaluation, bolstering expectations that a recent pick-up in the pace of appreciation could continue in the short term.
Sentiment toward the Chinese currency received an extra boost this week from a series of macroeconomic data pointing to a growing need for Beijing to let the yuan rise at a faster pace, dealers said.
China said on Friday its urban fixed investment rose 25.9 percent in the first five months from a year earlier, picking up from 25.5 percent growth in the January-April period. That followed an unexpectedly large trade surplus in May and a 27-month high in consumer price inflation for the month.
The figures prompted predictions of imminent monetary tightening to slow the world's fourth-largest economy, but dealers said that would only be part of the solution.
"Many of China's economic problems have their roots in the undervalued yuan," said a dealer at a European Bank. "China has said it will allow the yuan to appreciate faster only when its own economic conditions demand that, and it seems the right time for the central bank to do that - at least for the short term," he said.
The yuan closed at 7.6254 to the dollar, up from 7.6430 on Thursday, after hitting an intraday peak of 7.6230, its highest since Beijing revalued the currency and abolished its peg to the dollar in July 2005.
The yuan rose 0.39 percent for the week, toppling the previous record weekly gain of 0.35 percent in the week to May 11. On Thursday, the yuan tumbled in late trade in a technical move triggered by the closing of short dollar positions. "The yuan's quick recovery bodes well for its short-term trend," said a Shanghai dealer at a North American bank.
One-year offshore non-deliverable forwards (NDFs) quoted the yuan at 7.2880/7.2930, indicating a gain of 4.54 to 4.61 percent in one year's time from Friday's mid-point, up from 4.41 to 4.52 percent on Thursday. Before trade began on Friday, the People's Bank of China set the yuan's daily mid-point at a post-revaluation high of 7.6238 to the dollar, up modestly from Thursday's 7.6258.
The central bank has recently used its daily reference rate to engineer sharp swings in the yuan, including its second-biggest three-day fall since the revaluation as well as its largest one-day gain, which occurred just before the US Treasury Department's announcement on Wednesday of its politically sensitive semi-annual currency report.
In the report, the Treasury labelled China's currency "undervalued" and pledged to keep pushing for it to appreciate, but stuck to its view that Beijing was not manipulating its currency for trade gains. The Treasury report's moderate tone restored confidence that the yuan was likely to continue rising at its previous annual pace of about 4 to 5 percent, traders said.
Also on Wednesday, four US senators unveiled a long-awaited trade bill aimed at pushing China to let the yuan rise faster, but dealers and other market watchers expected it w short term.
Comments
Comments are closed.