China's yuan hit a record high for the third consecutive day on Friday but quickly pared gains as market sentiment turned cautious as the currency neared a key resistance level, traders said. Spot yuan traded as high as 6.0802 per dollar in early trade, its highest since China established the domestic foreign exchange market in 1994, before retreating to 6.0823 near midday, slightly weaker than Thursday's close of 6.0820.
Before trading began, the People's Bank of China (PBOC) set the official midpoint rate at 6.1333, two pips stronger than Thursday and within arm's reach of the midpoint's record high of 6.1330 fixed on Wednesday. "Trading turned cautious when the yuan approached the 6.08/dollar resistance" said a trader at a Chinese commercial bank in Shanghai.
"Market players believe the yuan's latest round of appreciation may end soon unless the PBOC pushes for a further currency rise." The yuan has risen 0.63 percent since October 11, breaching four psychological barriers at 6.12, 6.11, 6.10 and 6.09 as the central bank, making use of dollar weakening in global markets, guided the Chinese currency into a fresh round of appreciation, traders said.
The PBOC's tolerance towards the recent yuan's rise is seen partly due to the delay of long-anticipated tapering of US quantitative easing (QE), which will put off an expected slowdown of capital inflows into China, traders said. There is also market speculation that the latest wave of yuan appreciation is related to the upcoming currency report by the US Treasury Department. The report was due for publication on October 15 but was delayed by the partial closure of the US government earlier this month.
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