The yuan ended higher against the dollar on Tuesday but kept to range-bound trading as China's central bank appeared to have set a new, slightly higher effective peg for the yuan against the dollar in its reference rate. Spot yuan closed at 6.8246 versus the dollar on Tuesday, up slightly from Monday's close of 6.8270 after the People's Bank of China fixed the yuan's daily reference rate, or mid-point, marginally higher at 6.8260 versus Monday's 6.8267.
Since April 22, the central bank has confined the mid-point to a new range of 6.8200 to 6.8299 against the dollar, up from a range of 6.8300 to 6.8399 it had largely maintained from mid-December to late April. The new effective peg apparently reflects the improvement of some parts of the Chinese economy, dealers said, although they were quick to add that weakness in other parts appeared to be deterring the central bank from letting the yuan rise too much.
"Since the global financial crisis is not yet over, the (Chinese) central bank is likely to continue keeping the yuan in step with the dollar at certain levels," said a dealer at an Asian bank in Shanghai. "In the long term, however, the expected outperformance of the Chinese economy against most of its global counterparts is likely to compel China to allow the yuan to appreciate eventually," she said.
China's latest economic data for April, announced earlier this month, showed a strong recovery in bank lending growth, investment, and manufacturing purchasing prices. Bolstered by signs of economic improvement, China's benchmark Shanghai Composite Index rose nearly 1 percent on Tuesday to its highest intraday level in nine-and-a-half months and has jumped 47 percent this year, making it the world's best performing major stock index.
China's indicative five-year government bond yield edged up 0.09 basis point to 2.3782 percent bid on Tuesday, having risen 58.42 bps since it hit a multi-year low of 1.7940 percent in late December. However, China's exports, foreign direct investment, industrial output, and consumer and producer prices remain weak.
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